High Quality
Open the downloaded document, and select print from the file menu (PDF reader required).
ENGR 390 Lecture 13: Equivalent AnnualWorthWinter 2007S.V. Atre 1
1
Chapter 8
Equivalent Annual Worth Analysis
Equivalent annualworth criterion
Applying annualworth analysis
Mutually exclusiveprojects
Design economics
2
Computing Equivalent Annual Worth
$100$50$80$120$70
02 3 4 5 61
EAW(12%) = $189.43(
A
/
P
, 12%, 6)= $46.07
A
= $46.07
2 3 4 5 610
$189.43
0
PW(12%) = $189.43
i = 12%
ENGR 390 Lecture 13: Equivalent AnnualWorthWinter 2007S.V. Atre 2
3
Annual Worth Analysis
Principle:Measure investment worth on annual basis
Benefit:: By knowing annual equivalent worth, we can:
•
Seek consistency ofreport format
•
Determineunit cost(or unit profit)
•
Facilitate unequal project lifecomparison
4
Equivalent Annual Worth -RepeatingCash Flow Cycles
$500$700$800
$400 $400
$500$700$800$400 $400$1,000$1,000
Repeating cycle
ENGR 390 Lecture 13: Equivalent AnnualWorthWinter 2007S.V. Atre 3
5
•
First Cycle:
PW(10%) = -$1,000 + $500 (
P
/
F
, 10%, 1)+ . . . + $400 (
P
/
F
, 10%, 5)= $1,155.68EAW(10%) = $1,155.68 (
A
/
P
, 10%, 5) = $304.87
•
Both Cycles:
PW(10%) = $1,155.68 + $1,155.68 (
P
/
F
, 10%, 5)= $1,873.27EAW(10%) = $1,873.27 (
A
/
P
, 10%,10) = $304.87
6
Equivalent Annual Cost
When only costs areinvolved, the EAmethod is called theequivalent annualcost.
Revenues mustcover two kinds ofcosts: Operatingcostsand capitalcosts.
CapitalcostsOperatingcosts
+
E q u i v a l e n t A n n u a l C o s t s
Add a Comment
This document has made it onto the Rising list!