Outline

1. Introduction
2. Time value of money
3. Comparison methods – Part 1
4. Comparison methods – Part 2
5. Depreciation
6. Taxes
7. Retirement and replacement
8. Inflation & Sensitivity
9. Cost estimation
10. Analysis of Project cash flows
 3. Comparison methods –
equivalent
Part I
value

{ Puni form .
cash flow / year
L f

§ Comparison methods
§ Present worth or net present value minion onytaiiniñw

§
§
Annual worth
Future worth g
§ Comparing worths when lives of alternatives
are unequal
At the end, you should be able to
§ evaluate a project(s) whether it/they should be
invested.

view.
rinrfwi noroioi wvsiuufolsini dwnumndmnnt.cn
§ rank alternatives based on an economic point of
>
n'onion 'iñvÑ→ñovYp
inn ,
.

§ rank alternatives when lives of alternatives are

unequal.
 From Chapter 1

Monitoring existing system

Yes
Recognition of
Meet goals/objectives?
goals/objectives

No

Recognition of a problem

Solve the (technical) problem

Specify criteria
Set of alternatives

Establish constraints Evaluate the alternatives Data

using engineering economic
[ Dionisio
select the alternative(s)
-

w.nl wir É ,

inion moriññir n
,

Implement
 A Unit
(e.g., Reactor)

W.visnutnhhnhrwimurro.FI

f.
,
A Unit
(e.g., Reactor)

Bio mass Alternative 3

Oil Alternative 1
Gas Alternative 2
Which one is economically best ? - darn

]
inuu cashflow diagram
i
0 1 2 .... j .... N
Oil Alternative 1

intrusion oaqvnrwioalriv-d.hn
rrwwñ project Droll

i
Gas 0 1 2 .... j .... N
Alternative 2

i
0 1 2 .... j .... N
Bio mass Alternative 3
 Which investment alternatives or
projects do you prefer Plan I or Plan II?

Plan I Plan II

Initial investment -$100 -$100

Receipts @ end of 1 yr. 50 100
Receipts @ end of 2 yr. 100 50
Profit $50 $50
oionnuv cash flow &uiumr set interest
rate

Timing of project cash flows must be considered

When evaluate the alternatives, we have to
consider when the payments’re gonna happen

Tinnin cash flow Woo

§ Comparison methods
Some important assumptions applied to
comparison methods:
1. Costs and benefits are always measurable in term of
money. cost nisuwninln-lwuiiourosiiurinnfoiom-iiwuh.nu
2. Future cash flows are known with certainty.
iriniiroihouwhrou mYw'rmirÑ0
↳
prison ,iu9'n
3. Cash flows are unaffected by inflation or deflation.
4. Unless otherwise state, there are sufficient funds '

available to implement all projects. ntiiwwoynprojectñ

→

INWONT
5. Taxes are not applicable. iitaiñnnn
↳

6. Unless otherwise stated, all investments have a cash

outflow (called first cost) at the start.
mrrnnininndfirstcostifunlouhenu
↳ '
 Comparison methods (cont.)
lol UUNIII
For
Relations among projects - We consider four
types of connections among alternatives or
projects: nnsiitonndlaiiñuiioiiuiovoiwvnwovnitñfnvtn :b
•
'

itcoivdnwvnibnt ln zn ufokilntbnwu.ae
1. Independent alternatives –
Two (or more) projects are independent if the
expected costs and expected benefits of each of
the projects do not depend on whether or not the
other one is chosen.
e.g. To upgrade computer we could acquire
monitor, ram, cards or external disk drive.
Simplest relation between projects.
We consider each alternative one at a time and
decides (accept or reject) it on its own merits.
None, one or more than one project can be
selected.
 Comparison methods (cont.)

2. Mutually exclusive alternatives – intone

o-uinhkivohiowiu.no/w an%1adonidwhI
If one project is accepted, all other projects can not
be accepted.
It is impossible or does not make sense to accept
more than one alternative.
e.g. To upgrade computer printer we could acquire
an ink-jet printer or a laser printer.
,
 Comparison methods (cont.)
mnñonoiurioñwnoinir oiosfiod.nu
3. Financially mutually exclusive alternatives –
These are independence alternatives, but with
limited available fund. Ilium.no: in
e.g. we could acquire monitor, printer or external
disk drive, but the budget is limited. Then selected
independence alternatives are possible only when
the sum of the cost is less than the budget.
This types of alternations is important since we
need to decide if we could acquire only one
alternation or the combinations of alternations or
select to do nothing. which appears to be
economically preferred.
 Comparison methods (cont.)
nil ninth iton in o oh , u 8 ,

4. Contingent alternatives – Tu ri v v n u in v1 so ✓ "

These conditions occurs when the selection of one

option depends on the selection of one (or more)
others.
e.g. we consider to acquire a certain software only
if we also acquire a particular hardware (e.g., a
special printer or monitor). This means the
software is contingent on that hardware.
 nina nioocfn notion
Comparison methods (cont.)
> I

Besides all possible independent alternatives

v8 "onnm7Ñn9oi9v
described, we also have the “do nothing” (∅)
as another independent alternative. Then, the
total independent alternatives is X+1.
X+1 independence alternatives (including ∅)
can be combined to yield 2X mutually exclusive
alternatives.
e.g. There are 3 independence alternatives (Plan A, B
and C) along with ∅. Then we have 23 = 8 mutually
exclusive alternatives including of n7Ñ 21=8 no
1. ∅; 2. A alone; 3. B alone; 4. C alone;
5. A and B; 6. A and C; 7. B and C; 8. A, B and C.
 MARR Comparison methods (cont.)
Minimum acceptable (or attractive) rate of
return (MARR) rioniiuvn interest rate nfvinnrñnnhrlo
Ø MARR is an interest rate that must be earned for any
project to be accepted. rate of return
Ø Normally the company evaluating projects will set
MARR as a lower limit for investment acceptability.
Ø Projects that earn at least the MARR are desirable
since the money is earning at least as much as can
be earned elsewhere.
Ñw
MARR → interest riir.nniimoorfvln-riirio.in
; project
'

ioloin.si i' on nisi % air no

' MARR

hyun
 Comparison methods (cont.)
Comparison methods – methods of evaluating
and comparing projects.
1) Ranking of alternatives by

iii.i
increasing/decreasing equivalent worth
measures. HUNS cashflow Iiñionnindooriu
miss if i. Present worth (Net present value)
ii. Annual worth (Annual cost) HUUM rino uniform
iñoonir
iii. Future worth
un 4 2) Ranking of alternatives by marginal
(incremental) analysis and other methods–
Next Chapter, e.g.
§ Internal rate of return (IRR)
§ Payback period
 Comparison methods (cont.)
Criteria for evaluating and comparing
projects.
C B
Cost-Benefit analysis: Basically, an alternative
is acceptable if B – C ³ 0 or B/C ³ 1.
We select the alternative that yields the highest
equivalent worth of profit or the lowest cost
(when no benefit incurs). < o ñ v
'

o on n n

i o n ri n' I doh o ri, r r

'
,
Io
'

i n nn ,
,

Break-Even Analysis: Calculating when

revenue is equal to cost, or when one alternative
is equal to another if both depend on some
variable. qnfwn.vn9 of
n
 § Present worth (PW) or net present value (NPV)
Present worth method evaluates various
alternatives by discounting all cash flows
resulting from an investment decision to the
present value.
PW PW
Equivalent Aj Equivalent
Discrete cash flows Continuous cash flows
↳ iringfwndcnd of period 1M AN ↳ Indu period
A2
A0 A1
A1 A2 Aj AN
i i
0 1 2 .... j .... N 0 1 2 .... j .... N

Then, we rank them. The alternative having the

maximum net present value is selected.
 Present worth (cont.)

Ø For discrete cash flows, the present worth is

calculated from
N
PW = å Aj (1 + i )
-j

j =0

Ø For continuous cash flows, the present worth is

calculated from

é i (1 + i ) ù
-j
N
PW = å A j ê ú
j =1 êë ln(1 + i ) úû

where Āj is the cash flowing continuously and

uniformly during period j.
 Present worth (cont.)
Present worth of the “do nothing” alternative
Ø If the investor decided to “do nothing” with his funds,
it is assumed that the funds will be invested
elsewhere where they will yield a return of i (MARR)
per period – also called “opportunity cost”.
Ø The net return of funds invested elsewhere (benefit),
when discounted, is zero.
do nothing =p w -
o AN = P(1+i)N

PW = 0
i
0 1 2 .... j .... N
A0 = -P
Ø The alternatives having present worth greater than
zero can be undertaken (of course, we select the
alternative having highest NPV).
 4 > I 7372 > 0 Present worth (cont.)

§ Ex 3-1: All four mutually exclusive

alternatives with equal lives of 10 periods
have cash flows as shown in table below:4000 A =
300 2000

End of I Alternatives
flirt ftp.qq
go
4
'

iz
g. to ' ' ' '
I ' Ii #

f
.
. .

period -
I
1000
II III IV -

1000
-

1100

0 -$1,000 -$1,000 -$1,100 -$2,000

-1=0
1-10 0 300 320 550
10 4,000 0 0 0
Net cash $3,000 $2,000 $2,100 $3,500
flow
Rank all possible alternatives based on NPV.
Given i = 20%.
 Present worth (cont.)

-
10001-4000 ( PIF , 20% , 10 ) = -

354

1- 300 ( PIA 20% 101 = 258

-

tooo , ,

20% , 101 =
291
-

11001-320 ( PIA ,

-
zoootsso IPIA , 201,101 =
305

In ? -0
 Present worth (cont.)
cashflow lñnndriosionnroiwann )
Capitalized cost
Ø In case of perpetual investment, it may be necessary
to determine the present value of an infinite series
of cash flows. Known as “capitalized cost (CC)”.
Ø Capitalized cost is the amount of money that must be
invested today to yield a return of A at the end of
each and every period forever.
! ! !
'
!
f→
gapitalized
cost .
.

é ù ìï é (1 + i )N - 1ù üï
CC = Aêlim (P / A, i, N )ú = Aílim ê N úý
ë N ®¥ û ïî N ®¥ ë i (1 + i ) û ïþ

æ 1ö
CC = Aç ÷ PW
èiø
 Present worth (cont.)
§ Ex 3-2: An investment of $30,000 now will require
additional costs of $600 at the end of each year and every
year, perpetually. What is the total present worth of costs.
Given i = 12%. ↳ N →
no

cc = A / it /

NPV = 30000 1- A /÷ ) =
soooo +600 ( %) =
$35000

I
present worth ( PW )

_-net present value

 § Annual worth (AW)
Annual worth method converts all sequence of
cash flows (Aj’s) to the equivalent uniform
annual worth (A). Again, we rank them. The
alternative having the maximum annual worth is
selected. A
j
Discrete cash flows Continuous cash flows
AAW AN AW
2
A0 A1
A1 A2 Aj AN
i i
0 1 2 .... j .... N 0 1 2 .... j .... N
N N é i(1 + i )- j ù
AW = ( A / P, i, N )å Aj (1 + i ) AW = ( A / P, i, N )å Aj ê
-j
ú
j =0 j =1 ë ln(1 + i ) û
 Annual worth (cont.)
Ranking based on AW is equivalent to ranking
based on PW since AW method and PW
method are directly related by the factor
(A/P,i,N), i.e., AW = PW´(A/P,i,N).
Also, AW of the “doing nothing” alternative is
zero since PW (∅) = 0.
 Annual worth (cont.)
The cost of capital recovery or capital
recovery (CR) bijou ,wHM'% ↳ long'wn
@ on
'

CR is the uniform series equivalent of the original cost

of an asset subtracted by its salvage value.
S Fo taxi 1,000,000
n' inn d
i V70 capital '

Thinkin
0 1 2 .... j .... N recovery
flow riot

P
CR In'ñÑñ, cash
J
CR = P( A / P, i, N ) - S ( A / F , i, N ) pinna
'

f) A) V07

CR = ( P - S )( A / P, i, N ) + iS 11mL fly
-

Capital recovery factor

 Annual worth (cont.)
§ Ex 3-3: The firm is considering the purchase of certain
equipment that will require an initial investment of $12,000.
It is expected to result in annual expenses of $6,000

)
occurring at the end of each year over 6 years and a
residual (salvage) value of $3,000 at the end of 6 years.
Given i = 12%.
(a) Calculate the cost of capital recovery of this
equipment. Tahiti
(b) Calculate AW of this project riv capital cost

P =/ 2000
A = 6000

N = 6

s = 3000

i =
0.1
 Present worth (cont.)
(a) cost of capital recovery of this equipment
72000 3000
1
1
CR =
PIA /P , 12% 6) -
s / Alf 12^1 6)
, ,
,
,

$2549

However,
annual worth
if time value of money
→ 2849
is 1- 6000
not used, we have
ñmw

(12,000 – 3,000) / 6 = $1,500 à WRONG

 Present worth (cont.)
(b) AW of this project sivoifniornñiv
outdoors ( 12% 6)
AW =
-

120001 A IP , 12% 61
,
- 6000 1- 3000
AI , ,

=ÉÑooÑoz -
6000+5000-10-152317
-
-

8549
-

b
-

CR
§ Ex 3-4: Redo Ex 3-1 using annual worth.
Ex 3-1: All four mutually exclusive alternatives
with equal lives of 10 periods have cash flows
as shown in table below:
End of Alternatives
period I II III IV
0 -$1,000 -$1,000 -$1,100 -$2,000
1-10 0 300 320 550
10 4,000 0 0 0
Net cash $3,000 $2,000 $2,100 $3,500
flow
Rank all possible alternatives based on NPV.
Given i = 20%.
 Annual worth (cont.)

Same conclusion as using NPV (Ex3.1)

§ Future worth (FW)
Future worth method converts all sequence of
cash flows (Aj’s) to the end of the planning
horizon. Again, we rank them. The alternative
having the maximum future worth is preferred.
Aj FW FW
Discrete cash flows Continuous cash flows
A2 AN
A0 A1
A1 A2 Aj AN
i i
0 1 2 .... j .... N 0 1 2 .... j .... N
N
Vitor ,
turf ?
FW = å Aj (1 + i )
N- j
&
j =0
§ Ex 3-5: Redo Ex 3-1 using annual worth.
Ex 3-1: All four mutually exclusive alternatives
with equal lives of 10 periods have cash flows
as shown in table below:
End of Alternatives
period I II III IV
0 -$1,000 -$1,000 -$1,100 -$2,000
1-10 0 300 320 550
10 4,000 0 0 0
Net cash $3,000 $2,000 $2,100 $3,500
flow
Rank all possible alternatives based on NPV.
Given i = 20%.
 Future worth (cont.)

FW (I) = -$2,192
FW (II) = $1,596
FW (III) = $1,496
FW (IV) = $1,893

Same conclusion as using NPV (Ex 3-1) and AW (Ex 3-4)

§ Comparing worths when lives of alternatives
are unequal
To compare various alternatives, it is necessary
to do it within the context of a uniform planning
horizon. moioonuriailooih salvage flint in
End of period Alternative L Alternative S
0 -$100 -$120
1 30 50
2 30 50
3 30 38
4 30 --
Total cash flow PW $20 $18
2071hr cashflow AW 20/4=1
1
(assume i = 0%) hsun
-

u
PW 101
-

5--1813=6
Comparing worths when lives of alternatives are unequal
(cont.)
Let assume i = 0, pw _-
AW

}
= FWC " AW FW
pwlhli to PW
L > g

pwcs )
= 18 = Fwlsl
piano ✓ MYTH
niginooiy

}
AWCLI
=

¥ =
S

J > L

Awol
=

1,1=6
Something wrong !!
Comparing worths when lives of alternatives are unequal
oryronlvtahnhñv Cariou end of period )(cont.)
1. Repeatability – (identical replication)
This approach rests on two assumptions:
nin.r.vn 'i9iÑvou
initial ñoiqriiriiiu Repent →

period 2mn86 ninth

1. At the end of their respective service lives, each
alternative may be repeated.
2. there will be a need for each alternative.
rink assume
04 cash flow Shikibu

We need to find the least common multiple of project lives

iwdohiyñruvn
Comparing worths when lives of alternatives are unequal
(cont.)
Repeat the previous problem.
End of period Alternative L Alternative S
0 -$100 -$120
1 30 50
2 30 50
3 30 38
4 30
(assume i = 0%) Total cash flow $20 $18
$30 $30 $30

Alternative L
0 1 2 3 4 8 12
1st 2nd 3rd
-$100 -$100
$50 $50 $38 $50 $50 $38 $50 $50 $38 $50 $50 $38

Alternative S 0 1 2 3 s
st
1 2nd 3rd 4th
-$120 -$120 -$120 -$120
Planning horizon = 3´4 = 12 yr.
Comparing worths when lives of alternatives are unequal
(cont.)
Assume i = 0,

pwll / 12g ) =3 ✗ 10=60

PWLLIGPWCSI
pw ( s / my ) =
4×18=72

00/12=5
AWCL / 12g ) =
PWLL ) < Awls )

Awls 11227 = 92/12--6

iÑo Anandi

Same results now.

Comparing worths when lives of alternatives are unequal
(cont.)
§ Ex 3-6: Two mutually exclusive alternatives
have cash flows as follow: (i = 12%)
Alternative P Alternative Q
Initial cost $12,000 $20,000
Salvage value $3,000 $2,000
Annual $1,600 $900
operating costs
Service life 6 yr. 12 yr.

T.EE
Comparing worths when lives of alternatives are unequal
(cont.)
If we compare Alt. P @ 6 yr. vs. Alt. Q @ 12 yr. directly using NPV
NPV(P/6 yr.) =12000
-12,000 - 1,600 1- 30001
(P/A,12%,6) 12%161(P/F,12%,6)
PIF ,
+ 3,000
-17058
=

NPVIPlbyr.li -
-

1600 ( PIA 121,61

,

= - $ 17,058
P / F 12% 12 )
12% 121 t 2000 (
NPV(Q/12 yr.)
NPV ( Q / 12 yr )
= -20,000
20000
=
-

- 900
900 ( (P/A,12%,12)
PIA -

+ 2,000, (P/F,12%,12)
,
,
,

= - $ 25,061
.

25061 Npv ( P ) NPVLQ )

We get NPV(P) > NPV(Q)
-

=
>

12%161-1600 ( AIP 1- 30001A / F) 12% , 6)

However,
AWIP / 61 if we compare Alt.
= -

P vs. Alt. Q using repeatability

12000 ,

using AW 4149
= -

AW(P/6) = -12,000 (A/P,12%,6) - 1,600 + 3,000 (A/F,12%,6)

= -$ 4,149 1000 / Alf
12% / 2)
-1A / p , / 24,121
1-
900 ,
,

/ 121 = -20,000
AW(Q/12) (A/P,12%,12) - 900 + 2,000 (A/F,12%,12)
-

AWCQ zoooo
=
-

= -$ 4,046
= -4046

We get AW(Q) > AW(P)

we get
AWCQI ? AWIPI inconsistent result
We get inconsistent results
Comparing worths when lives of alternatives are unequal
(cont.)
However,
PHL yl
if we compare
-17058= Alt.
11705811P vs.
Plf Alt. Q67 using25700
12%
-

repeatability ,
,
=
-

pw (
(12 yr.) by doing Alt. P twice and Alt. Q once, we have
Q>p
-25061
PWIQ / my /
=

1 / A / P, 12% / 21=-4749
AWCP / thy = -25700 ,

AWIQ / Ily -4046

qf
) =

Same results now.

Now, both give Q>P, which are same results now.

Comparing worths when lives of alternatives are unequal
(cont.)

www.nprojeutriittriynunuii rnhi
in
2. study period
Ø A study period is the a time period that is given for
the analysis. The company will set the study period
taking into account the time of required service.
I Ø This approach needs an additional estimation of
un
SN“salvage value” whenever the life of the alternatives
exceed that of the study period.
Ø It have only one assumption – a finite time interval
beyond which the economic consequences of the

ioJwuu÷iw
" competing alternatives are no longer significant.
'

ri >
Nhi ↳ iinui.im n' www.
salvage
•
biannual
..
ÑN
'

→ In'ivb9n

↳ awh rn : Wiluna 107

Comparing worths when lives of alternatives are unequal
(cont.)
§ Ex 3-7: Repeat Ex 3-6 using study period
approach where the project discontinued
after 10 years:
run

Alternative P Alternative Q
Initial cost $12,000 $20,000
Salvage value $3,000 $2,000
Annual $1,600 2nd
$900
operating costs
Service life 6 yr. ④
+ 12 yr.

ñosf So
Comparing worths when lives of alternatives are unequal
(cont.)
What are S4(P) and S10(Q) ? $5,000 '

uniforms
Alternative P $3,000
un 5 v71 03

0 1 2 3 4 5 6 7 8 9 10 11 12
-$1,600/yr. -$1,600/yr.
-$12,0000• -$12,0000
1 st 2 nd

Planning horizon = 10 yr.

Study period oio > I

Alternative Q
$4,500

0 1 2 3 4 5 6 7 8 9 10
✗
11 12
-$900/yr.
-$20,0000
Comparing worths when lives of alternatives are unequal
(cont.)
Study period of 10 yr.

pwlplloyl
PWIQKG
<

AWCP / toy / < Aw

104%1
-4246
AW ( p / toy I =

p CQ

AWLQ / toy ) = -4183

We have same results now.

Comparing worths when lives of alternatives are unequal
(cont.)
§ Ex 3-8: An engineer has decided to install new equipment
to a production line. She needs to choose between two
alternatives (ii)
1 “building” the equipment and (ii) “buying”
the equipment off the shelf. Each alternative has a different
service life and a different set of costs. If the MARR is 9%,
which alternative is better using (a) repeated live method
and (b) study period method (10 year study period) and
assume S2(10) is $5,000 ? Tsi in Ju rio Noi ni now iñ sort
Alternative 1 Alternative 2
Initial cost $15,000 $25,000
Labour (per yr) $3,300 $1,450
Power (per yr) $400 $600
Maintenance (per yr) $2,400 $3,075
Taxes&insurance (per yr) $300 $500
Service life 10 yr. 15 yr.
Comparing worths when lives of alternatives are unequal
(cont.)
Study period of 10 yr.
"
"

nwnf Yen
,wÑ
30 N
a) 20
=
-
Nsw . Nilo any
g.

pw( 11
= 15000
-

lsooolplf ,
9T '

,
101 -

15000 ( PIF
, 94,201
( P / A / 9% )
-

(33001-4001-24001-300) ,
30 = -89800

② > ①
-25000
-
2500011° / F
,
9% 1st
pw 121
=
,

-89600
IP / A
,9% 301 =

-114501-6001-3021 1- soot ,

b)
'

l
①
y
:#
10

②
¥
-15000 133001-4001-24001-300 ) ( PIA ,q% so ) =
-

56073
pw (1)
=
-

(1300+4001-24001-300) / P / A ,9% ,
lol
121 zsooo
-

pw
-
=

+ 5000 We
/ Plfhave same results
, 94,107
-58989now. =
① > ②
Comparing worths when lives of alternatives are unequal
(cont.)

These two methods are not necessary to

give the same answer since both have
different assumptions which can lead to
different conclusion.
 cashflow lñnndiios Tutorial
tommyrot )
§ T 3-1*: What is the capitalized cost of a public that will cost
$25,000,000 now and will require $2,000,000 in
maintenance annually. The effective annual interest rate is
12%
A / ÷ )
2,000,0001¥ /
=

cc $16,666,666.67
=
=

PW =
25,000,000 1-16,666,666.69 =
41,666,666.67

CC = ?
 Tutorial
§ T 3-2*: Which of the following alternatives is superior over
30-year period if the effective annual interest rate is 7%

,jPwlB1>tw#
AWlB17AW
A
¥ : : : .
. .

I ,

f f , f
B
of it ! . .
.

I , ,
I 29 30

, ,

12.409
1800 SIP / A 7^1 ; 301 -

$1862.005
PWIAI =
-
- =
,
10 594
.

PWLB ) =
-

450
-

201nA , ?
-1-1307 =

0.0806
( AIP ,7% 30 ) S = -

$150.08
AWIAI
-

= -

1800 ,

0 -
0806

Aw (B) =
-

802.36 / A / P 7% 30 )
= -

$64.67
, ,
 Tutorial
§ T 3-3*: Break-Even Analysis
How many kilometers must a car be driven per year for leasing
and buying to cost the same? Use I = 10% and year-end cost.
Case 1 - Leasing: $0.15 per kilometer.
Case 2 - Buying: $5000 purchase cost, 3-year life, salvage
$1200, $0.04/ km for maintenance, $500 per year for insurance.
AW (leasing)
case 2 = $0.15x, where x is kilometers driven 2.487
0.7513

AW (buying)
PW (2) =
= $0.04x
5000
-

1- 1200+ /$500
PIF + ($5k)(A/P,10%,3)
not 3) 0.04 ✗
,
-
500 ( P / A 10% 3)
-
-

, ,
,

– ($1.2k)(A/F,10%,3)
5341.94 0.04/1
PWLZ )
- -

= $0.04x + $500 + ($5k)(0.4021) – ($1.2k)(0.3021)

0.15 ✗
-

Pwll ) =

= $0.04x + $2148
/ SX
0 {
341.94-0.04×1-0 .

PWIZ ) Pwll )
= -

Setting AW (leasing) = AW (buying) and solving for x

-
=

✗
0 S 341.941-0.11
$0.15x = $0.04x + $2148
-

x = 19,527 km ✗must be48863.09

driven to break even
=