Engineering Economic Analysis

Spreadsheets and Present Worth 163

FIGURE5-~ Spreadsheet with monthly

cash flows.

Since the costs are uniform, th~factor ~olt1tioriis:

PWIjlon .=-"30,OQO+20,000(P lA, 1%,12) == --,-$255,102

The value of monthly periods.can be'itl'l1strated..bycomputing thePW assuming an annual

peqoCt.Theresults differbY4'Il01:e!h.al1$,12,OOO,because$2Q,000 at the el1dofMonth~ 1 through

12 is not the same ?s$240,OOO.at theynd QfMonth 12. The timing of tile ca~htlows makest:lJ,e

differe:flce,even thougb the effective.interesttate§'are tbesa,tIl.e.

PWannual'"=-30,000" 240,QOO(P[F,12,68%,1» ,90,000 240,OQ0/1.:1268-$242,993

I I , I I 1 1 I J

Regina Industries has a new product whose sales are expected to be 1.2,3.5, 7, 5, (llld 3 million

units per year over the next 5 years; Prpductiol1, distrib4tipn, (llld..ov~rh~adicos~s are stable at $120

per unit The price will be $200 petunitfoI:tbefi,r~t~2 yearS,al1a.thbn$r80~$i6(), aIld~$f4Ufor

the next 3 years. The remaining R&D (llldproduction costs are $300n:;riUion.Jfiis 15%, WJ;1atis

b:: thep!e$,eptwor;.t~2';~~w!,d~ctZ=*,,,,,,~== =::;a ==~ ;;;;;:=
11 "".. _ ___ , J;I

1---

A B C D

1 1% i

(^2) -30,000 initial cash flow
(^3) -240,000 annual amount
4
(^5) Month Cash Flow
6 0 - 30000

7 1 -20000 I

8 2 -20000

9 3 -"20000 ..

10 4 -20000

11 5 ...,,20000

12 6 -20000

(^137) -'-20000 I
14 8 -20000 ,
15 9 -20000 --
(^1610) ,.,....20000
17 11 ""-20000
18 12 ---20000
(^19) NPV -$255,102 =NPV(A1,B7:B18)+B6