Engineering Economic Analysis

162 PRESENTWORTH ANALYSIS

PW of benefits =300(P/A,8%, 8) + (700- 300)(P/F,8%, 1)

• 100(P/ G, 8%,4)(P/F,8%,4)

=300(5.747) + 400(0.9259) + 100(4.650)(0.7350)

=2436.24

PW of cost= 1500

Net present worth=2436.24 - 1500

=+$936.24

To maximize NPW, choose Alt.A.

Spreadsheetsand PresentWorth

Spreadsheets make it easy to build more accurate models with shorter time periods. When

using factors, it is common to assume that costs and revenues are uniform fornyears.

With spreadsheets it is easy to use 120 months instead of 10 years, and the cash flows

can be estimated for each month. For example, energy costs for air conditioning peak in

the summer, and in many areas there is little construction during the winter. Cash flows

that depend on population often increase atx%per' year, such as for electric power and

transportationcosts. ,

In spreadsheets any interest rate is entered exactly-so no interpolation is needed.

This makes it easy to calculate the monthly repayment schedule for a car loan or a house

mortgage. Examples 5-12 and 5-13 illustrate using spreadsheets to calculate PWs.

NLE Construction is bidding on a project whose costs are divided into $30,000 for start-up and

$240,000 for the first year. If the interest rate is 1% per month or 12.68% per year, what is the

present worth with monthly compounding?

..SOlUTION~- - --.-.. .-. ._-"~"." - ,~,

Figure 5-4 illustratesthe spread,sheetsolution with the assumptionthat costs are distributedevenly

throughout the year (-20,000 = -240,000/12).i!!! := ill;! ="

__ 118888I__........_ - - -

1 - - - - - -- -