Energy Project Financing : Resources and Strategies for Success

226 Energy Project Financing: Resources and Strategies for Success

Decision: PW≥0 ($1530.07≥0.0); therefore, the window investment is at-

tractive.

An alternative (and simpler) approach to calculating PW is obtained

by recognizing that the savings cash flows are two uniform series, one

of value $2525 and length 3 starting at t = 1, and one of value $3840 and

length 3 starting at t = 4.

PW = –10000+2525*(P|A,15%,3)+3840*

(P|A,15%,3)*(P|F,15%,3)

PW = –10000+2525*(2.2832)+3840*(2.2832)*

(0.6575) = $1529.70

Decision: PW≥0 ($1529.70>0.0); therefore, the window investment is at-

tractive.

The slight difference in the PW values is caused by the accumulation

of round off errors as the various factors are rounded to four places to the

right of the decimal point.

A.7.3 Annual Worth

An alternative to present worth is annual worth. The annual worth

measure converts all cash flows to an equivalent uniform annual series of

cash flows over the investment life, using i = MARR. The annual worth

measure is generally calculated by first calculating the present worth

measure and then multiplying by the appropriate (A|P,i,n) factor. A thor-

ough review of the tables in Appendix 4A or the equations in Table A-6

leads to the conclusion that for all values of i (i>0) and n (n>0), the value

of (A|P,i,n) is greater than zero. Hence,

if PW>0, then AW>0;

if PW<0, then AW<0; and

if PW = 0, then AW = 0,

because the only difference between PW and AW is multiplication by a

positive, non-zero value, namely (A|P,i,n). The decision rule for invest-

ment attractiveness for PW and AW are identical: positive values indicate

an attractive investment; negative values indicate an unattractive invest-

ment; zero indicates indifference. Frequently the only reason for choosing

between AW and PW as a measure of worth in an analysis is the prefer-