IE 492 Engineering Economics FUTURE WORTH FW FW applicable in Large capital

Ie 492 engineering economics future worth fw fw

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IE 492 Engineering Economics
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FUTURE WORTH (FW) FW applicable in: Large capital investment decisions where the goal is to maximize the future value. E.g. value of stock. Selling of an asset after start-up but before reaching its end of life. In this case, FW at an intermediate year will estimate the worth of an alternative at the time of the sale. Projects that won’t come online until the end of the investment period, e.g. transportation infrastructure projects. FW >= 0 means that the MARR is met or exceed for the alternative. FW < 0 means that the MARR is not met for the alternative, and therefore another alternative may be selected. In case where multiple alternatives are being evaluated, and both exceed MARR, consider the alternative with the largest FW value. 8 IE 492 Engineering Economics
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EQUIVALENT UNIFORM ANNUAL SERIES (EUAS) EUAS is obtained by converting an equivalent value of the cash flow say Present Value, or Future Value to an uniform series cash flow for a specific period. This method is also has a major advantage as we can use EUAS / EUAC to compare two alternative / options with different time periods. Example, project #1 for 6 years and project #2 for 4 years can be compared by obtaining EUAC for each. Note that EUAC is negative of EUAS and if often used to compare, as EUAC is Equivalent Uniform Annual Cost. In our example, if project #1 EUAC < project #2 EUAC, then project #1 must be selected, and vice versa. 9 IE 492 Engineering Economics
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CAPITAL RECOVERY (CR) Capital Recovery factor is very similar to EUAS/EUAC, and applied to an asset / project where there is an initial cost ‘P’ and salvage value ‘SV’. Let’s consider a machinery with initial cost ‘P’ and salvage value / scrap value ‘SV’, then for present worth of that machinery we would have, PW = -P + SV (P/F,i%,n) Here we have
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