Lecture 2.6_AnnualCashFlow_26SEP2018_ARH.pdf - L2.6 Present Worth Analysis Annual Cash Flow Analysis Angela Harris CE250 Model 2 Engineering Economics

Lecture 2.6_AnnualCashFlow_26SEP2018_ARH.pdf - L2.6 Present...

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L2.6- Present Worth Analysis + Annual Cash Flow Analysis Angela Harris CE250 Model 2: Engineering Economics 26 September 2018 1
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Checking in HW peer grading 2
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Exercise 5-73 (in small groups) Find the best alternative in terms of economic efficiency. 10% interest rate A B C Initial cost $10,000 $15,000 $12,000 Annual benefit $6,000 $10,000 $5,000 Salvage value $1,000 - $2,000 $3,000 Useful life 2 3 4
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Capitalized Cost In governmental analyses, a service or condition sometimes must be maintained for an infinite period. We need to use an infinite analysis period in present worth analysis. Capitalized cost is the present sum of money that would need to be set aside now at interest rate i %, to yield the funds required to provide the service indefinitely .
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Capitalized Cost How do we find the capitalized cost? Principal sum + interest per period = Amount at end of period P + iP = P + iP If we only spend iP in each period, at the end of each period we will still have P . For any initial present sum P , there can be an end-of-period withdrawal of A equal to iP each period, and these withdrawals can continue forever without diminishing P .
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