Engineering Economy-16

Prepared by Eng. Maged Kamel

Civil Engineer.
Objective of lecture.

To understand the following points

1-Annual Worth Analysis.

Solved examples
 Present Worth

PW
A
Future Worth

FW

Annual Worth
AW Choice
Between A&B
Capitalize
d Cost

B
PAY
Rate Of Return
Back
Analysis ROR

Benefit
Cost
Analysis
 Annual Cash Flow Calculations
Resolving a Present Cost to an Annual Cost
• Simplest case is to convert
the PV to an A-series
(annual worth):
• A = P(A/P, i, n)
• Where there is salvage
value:
• A = F(A/F, i, n)
A is -PMT in EXCEL.
•To duplicate the A/P factor, put the
value for P in place of PV in the PMT
fields:
PMT(rate, nper, pv, fv, type)
(fv and type are 0)
•To duplicate the A/F factor, put the
value for F in place of FV in:
PMT(rate, nper, pv, fv, type)
(pv and type are 0)

See Examples 6 -1 &

2

EGR 403 - Cal Poly Pomona - SA8 4

 Annual Cash Flow
Four Essential Points
• EUAC = PWC(A/P, i, n)
• EUAB = PWB(A/P, i, n)
• EUAW = EUAB - EUAC
• EUAW is
• Decreased by a cost.
• Increased by a benefit.

• In MS Excel use “-PMT” to calculate EUAW

(remember the minus sign)

• For an irregular cash flow over the analysis period first

determine the PW then convert to EUAW.

EGR 403 - Cal Poly Pomona - SA8 5

Service Example: You are evaluating the purchase of a new or used cars that needs to last
you for 10 years. i = 8%.
New Car Used Car
Purchase Price $20,000 $10,000
Annual Maint. $ 750 $ 1,000
Resale Value $ 4,000 $ 4,000
Life, years 10 5
Service Example: You are evaluating the purchase of a new or used cars that needs to last you for 10
years. i = 8%.
New Car Used Car
Purchase Price $20,000 $10,000
Annual Maint. $ 750 $ 1,000
Resale Value $ 4,000 $ 4,000
Life, years 10 5
Service Example: You are evaluating the purchase of a new or used cars that needs to last
you for 10 years. i = 8%.
New Car Used Car
Purchase Price $20,000 $10,000
Annual Maint. $ 750 $ 1,000
Resale Value $ 4,000 $ 4,000
Life, years 10 5
Service Example: You are evaluating the purchase of a new or used cars that needs to last
you for 10 years. i = 8%.
New Car Used Car
Purchase Price $20,000 $10,000
Annual Maint. $ 750 $ 1,000
Resale Value $ 4,000 $ 4,000
Life, years 10 5
 Annual Worth Analysis
Earlier PW analysis for different-life alternatives:

Service Example: You are evaluating the purchase of a new or used cars that needs to last you for 10 years. i =
8%.
New Car Used Car
Purchase Price $20,000 $10,000
Annual Maint. $ 750 $ 1,000
Resale Value $ 4,000 $ 4,000
Life, years 10 5

PW (LCM 10) -$23,180 -$18,941

AW(New) = -$20,000(A/P,8%,10) - $750 + $4000(A/F,8%,10) = -$3454.48

AW(Used) = -$10,000(A/P,8%,5) - $1000 + $4000(A/F,8%,5) = -$2822.76

What is AW is calculate using the PW (LCM 10) values?

Service Example: You are evaluating the purchase of a new or used cars that needs to last
you for 10 years. i = 8%.
New Car Used Car
Purchase Price $20,000 $10,000
Annual Maint. $ 750 $ 1,000
Resale Value $ 4,000 $ 4,000
Life, years 10 5