Annual Equivelance analysis

# Annual Equivelance analysis - Annual Equivalent Worth...

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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 \$699-Two 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 (mini-Power 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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## This note was uploaded on 04/03/2012 for the course ENGINEERIN 12 taught by Professor Who during the Spring '09 term at Kadir Has Üniversitesi.

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Annual Equivelance analysis - Annual Equivalent Worth...

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