Present Worth Analysis Engineering Economics Two pieces of c

Present Worth Analysis: Engineering Economics.

Two pieces of construction equipment are being analyzed: Year Alt. A Alt. B 0 -$2000-$1500 1 +1000 +700 2 +850 +300 3 +700 +300 4 +550 +300 5 +400 +300 6 +400 +400 +400 +500 8 +400 +600 At an 8% interest rate, which alternative should be selected?

Solution

Alternative-A Year Cash flows PVF @ 8% Present value 0 -2000 1 -2,000 1 1000 0.925926 926 2 850 0.857339 729 3 700 0.793832 556 4 550 0.73503 404 5 400 0.680583 272 6 400 0.63017 252 7 400 0.58349 233 8 400 0.540269 216 Present worth 1588 Alternative-B Year Cash flows PVF @ 8% Present value 0 -1500 1 -1,500 1 700 0.925926 648 2 300 0.857339 257 3 300 0.793832 238 4 300 0.73503 221 5 300 0.680583 204 6 400 0.63017 252 7 500 0.58349 292 8 600 0.540269 324 Present worth 936 Alternative-A shall be selected