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Present worth analysis.
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Explanation of Solution
The time period is denoted by ‘n’, and the MARR is denoted by ‘i’. The time period 1 (n) is 40. The time period 2 (n1) is 20.
The present worth (PW) of Plan A can be calculated using the following formula:
Substitute the respective values in Equation (1) to calculate the present worth of Plan A with the actual time period.
The present worth is -$14,867.
Location is denoted by ‘L’. The present worth (PW) of Plan B can be calculated using the following formula:
Substitute the respective values in Equation (1) to calculate the present worth of Plan B with the actual time period.
The present worth is -$38,600.
Table-1 shows the value of present worth by change in the time period to different percentages that are obtained using Equations (1) and (2).
Table-1
Percentage of time period | PW A | PW B |
1 | -14,867 | -38,600 |
0.8 | -14,716 | -38,762 |
1.1 | -14,908 | -38,519 |
Table-1 reveals that at different levels of MARR, the present worth of Alternate A is greater than Alternate B. Thus, there is no sensitivity. Plan A is selected for different levels of time period.
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Chapter 18 Solutions
EBK ENGINEERING ECONOMY
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