UNIFORM GRADIENTS

I. INTRODUCTION

Certain investment projects generate cash flows that grow or decrease a

a certain constant amount each period. For example, the maintenance expenses of a
Certain equipment can increase by a certain constant amount each period. Also,
It is possible that certain projects generate cash flows that increase by a certain percentage.
constant for each period. This last case is easily understood when it is assumed
que los flujos por el efecto de la inflación crecen un cierto porcentaje constante por período.
This constant growth rate (amount or percentage) in economic engineering is called
known by the name of 'Gradient'.

II. DEFINICIÓN

A gradient refers to a series of periodic cash flows (income or outflow) that

they have a training law, which refers to cash flows that can
increase or decrease, in relation to the previous cash flow, by a constant amount in
pesos or as a percentage. The gradient is the amount that increases or decreases each year.
In the case of a gradient, the income or outflows of the end-of-year cash flow are
different, so a new formula must be deduced. When developing a formula
for uniform gradients, it is advisable to assume that the payment occurs at the end of the year
one does not involve a gradient but rather a base payment. So that a series of flows of
box is considered a gradient, it must meet the following conditions:

Cash flows must have a formation law.

Cash flows must be periodic.
Cash flows must have an equivalent present and future value.
The number of periods must be equal to the number of cash flows.
 Figure [Link] of a series of gradient payments.

III. TYPES OF UNIFORM GRADIENTS

A. Arithmetic gradient

An arithmetic gradient is a series of cash flows that increases or decreases by a

constant amount. That is, the cash flow, whether income or expenditure, changes by
the same arithmetic amount each period. The amount of increase or decrease is
the gradient. For example, if an industrial engineer predicts that the cost of maintenance
the robot will increase by $500 annually until the machine is disposed of, there is a series
related gradient and the amount of the gradient is $500. The developed formulas
Previously, for a Series A, they have year-end amounts of equal value. In the case
de un gradiente, el flujo de efectivo de cada final de año es diferente, de manera que es
I need to derive new formulas. First, assume that the cash flow at the end of year 1
it is not part of the gradient series, but rather a base quantity. This is convenient
because in real applications the base amount is generally greater or less than the
increase or decrease of the gradient. For example, if a person buys a car
used with a one-year warranty, one could expect that during the first year of operation
tuviera que pagar tan sólo la gasolina y el seguro. Suponga que dicho costo es $1 500; es
To say, $1,500 is the base amount. After the first year, the person would have to cover
the cost of repairs, and it would be reasonable to expect such costs to increase
every year. If it is estimated that total costs will increase by $50 each year, the amount to
the second year would be $1,550, the third year $1,600, and so on until year n, when the
the total cost would be $1,550 + (n - 1)50. The cash flow diagram for this operation is
shown in figure 2. Note that the gradient ($50) appears for the first time among the
years 1 and 2, And the base amount is not equal to the gradient.

The symbol G for gradients is defined as:

G = constant arithmetic change in the magnitude of income or expenses
de un periodo al siguiente; G puede ser positivo o negativo.

Figure 2. Diagram of an arithmetic gradient series with a base amount of $1,500.

gradient of $50.

El flujo de efectivo en el año n(CFn ) se calcula como

CFn=base amount+(n−1)G

Example 1

A sportswear company has launched a program to register its logo. It expects

obtain $80,000 in income from rights next year from the sale of your logo. It is expected
that revenue from rights increases steadily to a level of $200
000 in 9 years. Determine the arithmetic gradient and build the flowchart of
cash.

Solution

The base amount is $80,000 and the total increase in income is:

Increase in 9 years=200000−80000=120000

increase
Gradient=
n−1
 120000
¿ =$ 1 5 0 0 0
9−1

The cash flow diagram is shown in figure 3

Figure 3. Diagram for the gradient series, example 1

En el presente texto se derivan tres factores para los gradientes aritméticos: el factor P/G
for the present value, the A/G factor for annual series and the F/G factor for future value.
There are several ways to derive them. Here the present value factor with payment is used.
unique (P/F,i,n); although the same result can be achieved using the factors F/P, F/A or P/A.

In figure 4, the present value at year 0 of the gradient is equal to the sum of the
present values of the individual payments, where each value is considered as a
future amount.

Figure
4. Arithmetic gradient series ignoring the base amount.
Factor G and apply the P/F formula:

( 1)

By multiplying both sides of the equation (1) by (1 + i)1is obtained:

(2)

Stay the equation (1) of the equation (2) and simplify

(3)

The expression in brackets on the left is the same as the one that
present in equation (a), where the factor P/A was derived. Substitute the closed form of
Factor P/A from equation (b)] in equation (3) and isolate P to obtain a relationship
simplified

(a)

(b)
Finally it remains:

P=
[
G ( 1+i )n−1
I i ( 1+ i )
n
−
n
( 1+in) ] (4)

The equation (4) is the general relationship for converting an arithmetic gradient G (without
include the base amount) for years in a present value in year 0. Figure 5 shows
convierte en el flujo de efectivo equivalente que se indica en la [Link]
Present value of arithmetic gradient, factor P/G, is expressed in two forms.
different

(5)

Figure 5. Diagram of converting an arithmetic gradient to a present value.

Remember: the gradient starts in year 2 and P is located in year 0.

equation (4), expressed as a relationship of economic engineering, has the
next form:
 P=G(P/G,i,n) (6)

The equivalent uniform annual series (value A) of an arithmetic gradient G is

calculate by multiplying the present value of equation (6) by the expression of the factor
(A/P,i,n). In standard notation, the equivalent of algebraic cancellation
P is used to obtain the factor (A/G, i, n).

A= G(P/G,i,n)(A/P,i,n)
=G(A/G,in)

A=
[
G ( 1+i )n−1
i i ( 1+i )n
−
n
( 1+ in) ][( i ( 1+in)
1+in) −1 ]
¿ G−
[
1
i
n
( 1+in) −1 ] (7)

The expression in brackets in equation (7) is called the gradient factor.

arithmetic of a uniform series is identified by (A/G, i, n). This factor converts
la figura6aenla figura6b.

Figura 6. Diagrama de conversión de una serie gradiente aritmético a una serie anual
equivalent uniform.

An FIG factor (arithmetic gradient factor, future value) can be derived to

multiply the factors PIG and FIP. The resulting factor, (FIG, i, n), in brackets, and
the relationship of economic engineering is
 [( )( )]
n
1 ( 1+i−1
)
F=G −n
i i

The total present value PT for a gradient series must consider separately the
base and the gradient. Consequently, for cash flow series that involve
conventional gradients:

The base amount is the uniform series amount that starts in year 1.
it extends until the year. Its present value is symbolized as PA.
For an increasing gradient, the amount of gradient must be added to the
amount of the uniform series. The present value is Pc.
For a decreasing gradient, the gradient amount must be subtracted from the
quantity of uniform laser. The present value is -Pc.

The general equations to calculate the total present value PT of the gradients
conventional arithmetic is:

PT= PA + PGy PT= PAPG (8)

Similarly, the equivalent total annual series are

ATAA + AG y AT= AAAG (9)

where AAit is the annual base amount and AGit is the annual equivalent amount of the series
gradient.

Example 2. Positive arithmetic gradient

Three adjacent counties in Florida agreed to use fiscal resources now.

destined to remodel the bridges maintained by the county. In a meeting
recently, county engineers estimated that, by the end of next year, it will
depositará un total de $500000 en una cuenta para la reparación de los viejos
questionable safety bridges that are found in the three counties. Additionally,
they estimate that deposits will increase by $100,000 per year for 9 years starting from
that moment, and then they will cease. Determine the equivalent amounts of (a) value
present and b) annual series, if the county funds earn interest at a rate of
5% anual.
Solution

The cash flow diagram from the county's perspective is shown in the
figure 7.

Figure 7. Series of cash flows with a conventional arithmetic gradient (in units of
$1000)

a) Two calculations must be made and then summed: the first for the
present value of the base amount PA, the second for the present value of
gradientPGThe total present value PTit occurs in the year 0, which is indicated
through the partition of the cash flow diagram in figure 8. In
units of $1,000, the present value, from equation (8) is

PT = 500(P/A,5%,10) + 100(P/G,5%,10)

= 500(7.7217) + 100(31.652)

$7,026.05 $7026050

b) It is also necessary here to separately consider the gradient and the quantity
total annual series ATis found using equation (9).

AT= 500 + 100(A/G,5%,10) = 500 + 100(4.0991)

$909.91 per year ($909910)

yAT It occurs from year 1 to year 10.

Remember: the P/GyA/G factors determine the present value and the annual series only
of the gradient. Any other cash flow should be considered separately. If the
present value is already calculated (as in item a)), PTcan be multiplied by the
factorA/Inappropriate to obtainAT.

AT=PT(A/P,5%,10)=7026.05(0.12950)

=$909.87 ($9098870)

The rounding explains the difference of $40.

Figure 8. Cash flow diagram with partition (in units of $1000), example 2.
 Example 3. Negative arithmetic gradient

A person deposits an annual amount into a savings account that goes

decreasing by a constant amount of $500 per year. The magnitude of the first
The deposit made is $10,000 and the last one is $5,500. If in the account of
savings earn a 15% annual return, what should be the amount of an annual deposit?
constant over the same period of time so that the accumulated amount is the same?

Data:
A T=A A +G −
[
1
i
n
(1+i )n −1 ]
G=500

AA10,000
A T=−10000+500
[ 1
−
10
]
0.15
( 1+0.150.15
) −1

i=15%
n=10 AT= $ -8308.40
ATAA+ AG
VI. BIBLIOGRAPHY

Blank, L., Tarquin, A. (2006). Economic engineering. Mexico. Interamericana

editores.

Economic Engineering. Definition of gradient. Extracted September 25:

[Link]
de-gradientes/

Serie de Gradiente (Geométrico y Aritmético) y su relación con el presente.

Extracted the 25 of September de:
[Link]