Information about 6.2 cash flow - time diagrams

Building Economy ARE 431 Dr. Mohammad A. Hassanain 2 3 Symbols and Cash Flow Diagrams The mathematical relations used in engineering economy employ the following symbols: P = Value of sum of money at a time denoted as the present. F = Value or sum of money at some future time, or a single sum of money at the end of n interest period. A = A series of periodic, equal amount of money. n = Number of interest periods. i = Interest rate per interest period. Note: The dollar amount of F and A are considered at the end of the interest period. 4 Cash Flow Every person or company has cash receipts (income) and cash disbursement (costs). The results of income and costs is called cash flow. Cash Flow = Receipts – Disbursements A positive cash flow indicates a net receipts in a particular interest period or year. A negative cash flow indicates a net disbursement in that period.

Building Economy ARE 431 Dr. Mohammad A. Hassanain 3 5 Cash Flow Example: If you buy a printer in 1999 for $300, maintain it for three years at a cost of $20 per year, and then sell it for $50, what are your cash flows for each year? + $30$20$502002 - $20$2002001 - $20$2002000 - $300$30001999 Cash FlowDisbursementReceiptsYear Its important to remember that all receipts and disbursements and thus cash flows are assumed to be end-of period amounts. Therefore, 1999 is the present (now) and 2002 is the end of year 3. 6 Cash Flow Example: Suppose you borrowed $1,000 on May 1, 1984, and agree to repay the loan in one lump sum of $1,402.60 at the end of four years at 7%. Tabulate the cash flows? 000May 1, 1987 - $1,402.60$1,402.600May 1, 1988 000May 1, 1986 000May 1, 1985 + $1,0000$1,000May 1, 1984 Cash FlowDisbursementReceiptsDate

Building Economy ARE 431 Dr. Mohammad A. Hassanain 4 7 Cash Flow Diagrams A cash flow diagram is simply a graphical representation of cash flows (in vertical direction) on a time scale (in horizontal direction). Time zero is considered to be present, and time 1 is the end of time period 1. This cash flow diagram is set up for five years. 0 4321 5 Year 1 Year 5 8 Cash Flow Diagrams The direction of the cash flows (income or outgo) is indicated by the direction of the arrows. From the investor’s point of view, the borrowed funds are cash flows entering the system, while the debt repayments are cash flows leaving the system. Time 321 (+ve) Cash Flow ($) (-ve) 4

Building Economy ARE 431 Dr. Mohammad A. Hassanain 5 9 Cash Flow Diagrams Example 1: If you borrow $2,000 now and must repay the loan plus interest (at rate of 6% per year) after five years. Draw the cash flow diagram. What is the total amount you must pay? P = $2,000 5 31 (+ve) Cash Flow ($) (-ve) 420 F = is to be found after 5 years F = $2,000 (1+0.06)5 F = $2,676.45 10 Cash Flow Diagrams Example 2: If you start now and make five deposits of $1,000 per year (A) in a 7% per year account, how much money will be accumulated immediately after you have made the last deposit. Draw the cash flow diagram. What is the total amount you will accumulate? A = $1,000 3 4210 F = is to be found after 4 years Since you have decided to start now, the first deposit is at year zero and the fifth deposit and withdrawal occur at end of year 4

Building Economy ARE 431 Dr. Mohammad A. Hassanain 6 11 Cash Flow Diagrams Example 3: Assume that you want to deposit an amount (P) into an account two years from now in order to be able to withdraw $400 per year for five years starting three years from now. Assume that the interest rate is 5.5% per year. Construct the cash flow diagram. A = $400 64 20 1 3 P = ? 5 7 12 Cash Flow Diagrams Example 4: Suppose that you want to make a deposit into your account now such that you can withdraw an equal amount (A1) of $200 per year for the first five years starting one year after your deposit and a different annual amount (A2) of $300 per year for the following three years. With an interest rate (i) of 4.5% per year, construct the cash flow diagram. P = ? A = $200 642 0 1 3 5 7 A = $300 8 i = 4.5% The first withdrawal (positive cash flow) occurs at the end of year 1, exactly one year after P is deposited.

Discrete element method modelling (DEM) has proven over many years to be a powerfu...

Segregation Testing to confirm packer isolation and well integrity. Monitor w...

A small presentation of History matching and a case study on it. Also on Gas mater...

Tire sua duvidas a respeito da implementação da NR 12 Converse com um especialis...

A cash flow diagram allows you to graphically ... Now that we know how to draw cash flows, we can embellish our diagram to make ... Label the time ...

Read more

Cash Flow Diagrams. ... Diagram. The time line is a horizontal ... lease payments are negative cash flows that are represented by arrows which ...

Read more

Because of the time value of money, the timing of cash ... cash flow diagrams can be drawn to help visualize and simplify problems that have diverse

Read more

Cash Flow Diagrams Time and value of ... The Present Value of the cash flows can be calculated by multiplying each cash ... cash flow diagrams, ...

Read more

... and resale value of equipment at the end of the project. Cash flow diagrams may also be used to represent payment schedules for bonds, ...

Read more

... Engineering Business Practices explains how to use a cash flow diagram ... Part 1 (Time Value of Money ... Cash Flow Analysis ...

Read more

Six basic cash flows in diagram form showing the cash flow ... Six basic cash flows in diagram form showing the cash flow and solved with ...

Read more

Cash Flows & Compound Interest. ... Every Cash flow diagram contains the following components: ... values over time (N) with interest (i).

Read more

## Add a comment