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Unformatted text preview: Annual Equivalent Worth Criterion Which Brand Would you Pick? Brand A Brand B $55/Year $85/Year $799 $699Two different refrigerators Service life 25 years Salvage value 0 How Would you calculate the hourly operating cost? Annual Equivalence Analysis Annual equivalent criterion Applying annual worth analysis Mutually exclusive projects Chapter Opening Story Capstone Turbine Corporation Manufacturer of micro turbine (miniPower Plant) At Issue : Economics of MicroCHP Annual Worth Analysis Principle : Measure an investment worth on annual basis Benefit : By knowing the annual equivalent worth, we can: Seek consistency of report format Determine the unit cost (or unit profit) Facilitate the unequal project life comparison Example 6.1 Computing Equivalent Annual Worth $15 $3.5 $5 $12 $8 2 3 4 5 6 1 A = $1.835 2 3 4 5 6 1 AE(12%) = $6.946( A / P , 15%, 6) = $1.835 $6.946 PW(15%) = $6.946 $9.0 $10 Annual Equivalent Worth  Repeating Cash Flow Cycles $500 $700 $800 $400 $400 $500 $700 $800 $400 $400 $1,000 $1,000 Repeating cycle First Cycle : PW(10%) = $1,000 + $500 ( P / F , 10%, 1) + . . . + $400 ( P / F , 10%, 5) = $1,155.68 AE(10%) = $1,155.68 ( A / P , 10%, 5) = $304.87 Both Cycles : PW(10%) = $1,155.68 + $1,155.68 ( P / F , 10%, 5) + . . . + $400 ( P / F , 10%, 5) = $1,873.27 AE(10%) = $1,873.27 ( A / P , 10%,10) = $304.87 Annual Equivalent Cost When only costs are involved, the AE method is called the annual equivalent cost . Revenues must cover two kinds of costs: Operating costs and capital costs . Capital costs Operating costs + Annual Equivalent Costs Capital (Ownership) Costs Def : Owning an equipment is associated with two transactions(1) its initial cost ( I ) and (2) its salvage value ( S )....
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 Spring '09
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