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Use i
Unequal Lives
PW method requires that the lives of all of the options are equal. If the alternatives have different lives assume costs are repeated. Repeat until Lowest Common Multiplier of the unequal lives. Two excavating machines are available:
Annual Disbursements Initial Costs Salvage Value Life Machine A Machine B $ 3,500 $ 3,100.00 $ 11,000 $ 18,000.00 $ 1,000 $ 2,000.00 6 9
Which one should be selected based on an interest rate of 5 18% per year?
Alternative B is better because its annual cost is lower than that of Alternative A.
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The present worth of a project with an infinite life is called the capitalized or life cycle cost. It is the amount of money required at time zero to perpetually support the project on the earned interest only. CC = Initial Cost + Annual Costs/i
i=
10
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If you pay me $15,000 now and I promise to pay you back in 10 end of year payments of $2,800 what is your rate of return?
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