Lecture No16 c5.ppt - Contemporary Engineering Economics 4...

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Contemporary Engineering Economics, 4 th edition, © 2007 Discounted Cash Flow Analysis Lecture No.16 Chapter 5 Contemporary Engineering Economics Copyright © 2006
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Contemporary Engineering Economics, 4 th edition, © 2007 Net Present Worth Measure Principle : Compute the equivalent net surplus at n = 0 for a given interest rate of i . Decision Rule for Single Project Evaluation : Accept the project if the net surplus is positive. Decision Rule for Comparing Multiple Alternatives : Select the alternative with the largest net present worth. 2 3 4 5 0 1 Inflow Outflow 0 PW( i ) inflow PW( i ) outflow Net surplus PW( i ) > 0
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Contemporary Engineering Economics, 4 th edition, © 2007 Example 5.5 - Tiger Machine Tool Company PW P F P F P F PW PW ( $24, ( / , ) $27, ( / , ) $55, ( / , ) $78, ( $75, ( $78, $75, $3, , 15%) 400 15%,1 340 15%,2 760 15%,3 553 15%) 000 15%) 553 000 553 0 inflow outflow Accept $75,000 $24,400 $27,340 $55,760 0 1 2 3 outflow inflow
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Contemporary Engineering Economics, 4 th edition, © 2007 A B C 1 Period Cash Flow 2 0 ($75,000) 3 1 $24,400 4 2 $27,340 5 3 $55,760 6 7 PW(15%) $3,553.46 =NPV(15%,B3:B5)+B2 Excel Solution:
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Contemporary Engineering Economics, 4 th edition, © 2007 i (%) PW( i ) i (%) PW( i ) 0 $32,500 20 -$3,412 2 27,743 22 -5,924 4 23,309 24 -8,296 6 19,169 26 -10,539 8 15,296 28 -12,662 10 11,670 30 -14,673 12 8,270 32 -16,580 14 5,077 34 -18,360 16 2,076 36 -20,110 17.45* 0 38 -21,745 18 -751 40 -23,302 *Break even interest rate Present Worth Amounts at Varying Interest Rates
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Contemporary Engineering Economics, 4 th edition, © 2007 Present Worth Profile
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