Annual Equivelance analysis - Annual Equivalent Worth...

Info iconThis preview shows pages 1–11. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

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 )....
View Full Document

Page1 / 27

Annual Equivelance analysis - Annual Equivalent Worth...

This preview shows document pages 1 - 11. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online