Energy Project Financing : Resources and Strategies for Success

240 Energy Project Financing: Resources and Strategies for Success

PWA = –1000 + 600*(P|A,12%,4) = –1000 + 600 (3.0373)

= $822.38

PWC = –400 + 120*(P|A,12%,4) = –400 + 120 (3.0373)

= –$35.52

PWD = –500 + 290*(P|A,12%,4) = –500 + 290 (3.0373)

= $380.83

PWA&C = –1400 + 720*(P|A,12%,4) = –1400 + 720 (3.0373)

= $786.86

PWA&D = –1500 + 890*(P|A,12%,4) = –1500 + 890 (3.0373)

= $1203.21

PWC&D = –900 + 410*(P|A,12%,4) = –900 + 410 (3.0373)

= $345.31

PWnull = –0 + 0*(P|A,12%,4) = –0 + 0 (3.0373) = $0.00

The decision rules for the various measures of worth under con-

strained analysis are list below:

Constrained PW Decision Rule: Accept the decision alternative with the

highest PW.

Constrained AW Decision Rule: Accept the decision alternative with the

highest AW.

Constrained IRR Decision Rule: Accept the decision alternative with the

highest IRR.

Constrained SIR Decision Rule: Accept the decision alternative with the

highest SIR.

For the example problem, the highest present worth ($1203.21) is

associated with accepting projects A and D (rejecting all others). This deci-

sion is guaranteed to be optimal (i.e., no feasible combination of projects

has a higher PW, AW, IRR, or SIR).