Engineering Economic Analysis

182 ANNUAL CASH FLOW ANALYSIS

EUAC=45 +45(A/G, 7%, 5)

= 45 + 45(1.865)

= $129

Since the timing of the expenditures is different in Examples 6-3 and 6-4, we would not expect

to obtain the same EUAC.

The examples have shown four essential points concerning cash flow calculations:

1. There is a direct relationship between the present worth of cost and the equivalent
   unifonn annual cost. It is

EUAC=(PW ofcost)(A/ P, i, n)

2. In a problem, an expenditure of money increases the EUAC, while a receipt of
   money (obtained, for example,from selling an item for its salvage value) decreases
   EUAC.


3. When there are irregular cash disbursements over the analysis period, a convenient
   method of solution is to first determine the PW of cost; then, using the equation in
   Item 1 above, the EUAC may be calculated.


4. Where there is an arithmetic gradient, EUAC may be rapidly computed by using

the arithmetic gradient unifonn series factor,(A/G,i, n).

Annual Cash Flow Analysis

The criteriafor economic efficiencyare presented in Table6-1. One notices immediatelythat

the table is quite similarto Table5-1. In the case of fixedinput, for example,the present worth

criterion ismaximize PW of benefits,and the annual cost criterion ismaximize equivalent

uniform annual benefits.It is appar~nt that, if you are maximizing the present worth of

benefits, simultaneously you must be maximizing the equivalent unifonn annual benefits.

This is illustrated in Example 6-5.

TABLE6-1 Annual Cash Flow Analysis

Input/Output

Fixed input

Situation Criterion

Fixed output

Amount of money or other

input resources is fixed

There is a fixed task, benefit,

or other output to be

accomplished

Neither amount of money, or

other inputs, nor amount of

benefits, or other outputs, is fixed

~axUITrizeequivmentunUorm

benefits (maxUITrizeEUAB)

Minimize equivment unUorm

annum cost (minimize EUAC)

Neither input

nor output is fixed

~aximize (EUAB- EUAC)

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