ISE2014_Class18

ISE2014_Class18 - Class 18 Capitalized Worth and Payback...

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Click to edit Master subtitle style Class 18 – Capitalized Worth and Payback ISE2014 Fall 2010
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Your Methods PW Method AW Method FW Method IRR Method Incremental Analysis Incremental IRR Analysis
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Today’s Class Our current methods can determine if almost any project is acceptable PW, AW, FW, IRR Our current methods can determine best alternative in almost any situation PW, AW, FW Incremental PW, Incremental AW, Incremental FW
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Today’s Class Today’s class will focus on two methods that aren’t for general use Capitalized Worth – A method for dealing with indefinite projects Payback Analysis – A method for determining how long until a project recovers its costs
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Capitalized Worth Capitalized Worth is a method for dealing with an unusual situation What if we have “forever” useful lives? National Parks Highways Bridges Endowments
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Capitalized Worth Capitalized Worth is NOT the same as using the repeatability assumption forever (see problem 6-41 from last class) In Capitalized Worth we invest in the project only once The returns on that one investment last indefinitely Section 5.3.3 in your textbook
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Capitalized Worth The Capitalized Worth (CW) Method deals with these projects (and only these projects) Good news: its really easy We’re going to use PW Method and let n=∞ for any infinite cash flows (P/A,i,∞) = 1 / i
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CW Example 1 Suppose a wealthy individual wants to
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This note was uploaded on 02/28/2011 for the course ISE 2014 at Virginia Tech.

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ISE2014_Class18 - Class 18 Capitalized Worth and Payback...

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