Engineering Fundamentals: An Introduction to Engineering, 4th ed.c

674 Chapter 20 Engineering Economics

Note that we have determined the equivalent present worth of all future cash flow, including

the yearly maintenance and operating costs and the salvage value of the air-conditioning unit.

In the preceding analysis, the negative sign indicates cost, and because alternative B has a lower

present cost, we choose alternative B.

Annual Worth or Annual Cost Analysis Using this approach, we compute the equivalent annual

worth or annual cost value of each alternative and then pick the alternative with the lowest

annual cost or select the alternative with the highest annual worth or revenue. Applying the

annual worth analysis to our example problem, we have

Alternative A:

Alternative B:

Note that using this method, we have determined the equivalent annual worth of all cash flow,

and because alternative B has a lower annual cost, we choose alternative B.

Future Worth or Future Cost Analysis This approach is based on evaluating the future worth or

future cost of each alternative. Of course, you will then choose the alternative with the lowest

future cost or pick the alternative with the highest future worth of profit. The future worth

analysis of our example problem follows.

Alternative A:

Alternative B:

Because alternative B has a lower future cost, again we choose alternative B. Note that regard-

less of which method we decide to use, alternative B is economically the better option. More-

over, for each alternative, all of the approaches discussed here are related to one another through

the interest – time relationships (factors). For example,

FW245,146.81

FW 5000  1 85,000 21 2.15892500 2  13400  120021 14.48656247 2

FW 5000 85,000 1 F /P, 8%, 10 2  13400  120021 F /A, 8%, 10 2

FW256,595.46

FW10,000 1 100,000 21 2.15892500 2  12500  100021 14.48656247 2

FW10,000100,000 1 F /P, 8%, 10 2  12500  100021 F /A, 8%, 10 2

AW16,922.35

AW 13400  12002 85,000 1 0.14902949 2  50001 0.06902949 2

AW 13400  12002 85,000 1 A /P, 8%, 10 2  50001 A /F, 8%, 10 2

AW17,712.65

AW 12500  10002  1 100,000 21 0.14902949 2  1 10,000 21 0.06902949 2

AW 12500  10002 100,000 1 A /P, 8%, 10 2 10,000 1 A /F, 8%, 10 2

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