W2_WAS_Time Value of Hajj Payment


Step 1- Problem or Opportunity Statement

Hajj is a mandatory religious activity for a Muslim who is able to do it. I am planning to perform hajj in about 5 years from now, as there is waiting list for hajj participant.

In 2012, Hajj cost is around USD 9000, and I have paid USD 4500 for advance payment.
Hajj Cost                  : USD 9,000
Advance Payment    : USD 4,500
Remaining Payment : USD 4,500

But I know, in 2018 the cost is not as simple as USD 4500.

My problems are:

  • Value of USD 4.500 in 2018

  • Value per year, that i have to prepare for 5 years

Step 2 – “FEASIBLE alternatives”

1) To calculate the remaining payment in 2018, I will use:

Future Equivalent Values

F = P(1+i)N                or                 F = P (F/P, i%, N)

2) While to calculate value per year that I have to prepare, Uniform Series Formula is used:

Uniform Series – Future Equivalent Values

      

            A = F (A/F, i% ,N)

Step 3- Develop the outcomes for each alternative

1) Using Future Equivalent Values

F = Future sum of money (?)
P = Present sum of money (4,500 USD)
i = Effective interest rate per interest period (10%)
N = Number compounding (interest) periods (5)

F = P(1+i)N   ;     F = 4,500 (1+10%)5

            F = 7,247.3

Value of $ 4.500 in 2013 will turn out to be 7,247.3 USD in 2018.

# Using Uniform Series – Future Equivalent Values
F = Future sum of money   (7,247.3 USD)
i  = Effective interest rate per interest period (10%)
N = Number compounding (interest) periods (5)
A = Annual equivalent value

Step 4- Selection of the acceptable criteria.

I will compare between direct payment USD 7917 at the end of 2018 or make a regularly investment USD 1,187.1 every year for 5 years.

Step 5- Analysis/ Comparison of the Alternatives against the Criteria

Table below shows comparison of regular investment and direct payment at 2018.

Step 6- Selection of the Best/ Preferred Alternative Compared against the Criteria

Reguler investment every year USD 1,187.1 is much easier / cheaper than direct payment USD 7917 at the end of 2018. Assumption is, investment instrument I use gives interest above the inflation rate of 10%.

Step 7- Performance Monitoring and Post Evaluation of Result/ Follow up Assessment

To achieve maximum results, I need to be discipline to save USD 1,187.1 every year. In addition, I should carefully select investment instruments that will make benefit over 10%.  By considering annual financial statements of mutual funds, it will helps to choosing the best investment instrument.

REFERENCES

Sullivan, W. G., Wicks, E. M., & Koelling, C. P. (2012). The Time Value of Money. In Engineering Economy (15th ed., pp. 104-162). Upper Saddle River, N.J: Prentice Hall.

MQ Travel (2013). Program Haji .[ONLINE] Available at: http://www.mqtravel.co.id/program-mq-travel/program-haji/. [Last Accessed 7 September 2013].

Westney, Ricahrd E, (1997). The Engineer Cost Handbook. 1st ed. New York: Marcel Dekker, Inc. .

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9 Comments

Filed under Week 02, Wirawan ASP

9 responses to “W2_WAS_Time Value of Hajj Payment

  1. EXCELLENT case study, Pak Wirawan and not only did you follow our step by step process exactly, but your citations were in conformance to APA format. NICE WORK!!!

    As you have proven to me that you know how to use this tool/technique, you can use this blog posting to claim one of the problems from the appropriate chapter in Engineering Economy…..

    Keep up the good work and looking forward to more postings of this quality in the future….

    BR,
    Dr. PDG, Singapore

  2. PS Another posting on this same topic would be to compare investing in gold, real estate, money market or stock market and compare which is more likely to give you >10% annual return on your investments…..

    BR,
    Dr. PDG, SIngapore

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