Measurements of economic worth, Other Engineering

Measurements of Economic Worth

There are several methods of economic worth used to compare alternatives. If you decide to use present worth analysis, then you have indicate a preference to use a single sum of money at a time called "the present" as the basis for comparison. If you decide a future worth analysis, then you prefer to use a single sum equivalent at a time called "the future" as the basis for comparison. If instead of expressing an investment's economic worth as a single sum equivalent, you prefer to think in terms of an annualized figure, then the annual worth would be preferred. Some prefer to express the net economic worth as a rate or percentage, which is known as the internal rate of return (IRR). Finally, some prefer to have the net economic worth expressed as a percentage of the investment required - the benefit cost ratio.

The nine DCF methods may be described as follows:

1. The present worth (PW) method converts all cash flow to a single sum equivalent at time zero using i = MARR (minimum attractive rate of return)

2. The future worth (FW) method converts all cash flow to a single sum equivalent at the end of the planning horizon using i = MARR.

3. The annual worth (AW) method converts all cash flow to an equivalent uniform annual series of cash flows over the planning horizon using i = MARR.

4. The internal rate of return (IRR) method determines the interest rate that yields a future worth (or present worth or annual worth) of zero.

5. The external rate of return (ERR) method determines the interest rate that equates the future worth of the invested capital to the future worth of recovery capital (when the later is computed using the MARR).

6. The modified internal rate of return (MIRR) method determines the interest rate that equates the PW of invested capital (where the present worth is calculated using a finance rate) to the future worth of recovered capital (where the future worth is calculated using the MARR).

7. The discounted payback period (DPBP) method determines how long it takes for the cumulative present worth to be positive using i =MARR.

8. The capitalized worth (CW) determines the present worth (using i = MARR) when the planning horizon is infinitely long.

9. The benefit/cost ratio (B/C) method determines the ratio of the present worth of benefits (saving or positive-valued cash flows) to the negative of the present worth of the investment(s) or negative-valued cash flows using i = MARR.

Posted Date: 3/15/2013 5:44:38 AM | Location : United States







Related Discussions:- Measurements of economic worth, Assignment Help, Ask Question on Measurements of economic worth, Get Answer, Expert's Help, Measurements of economic worth Discussions

Write discussion on Measurements of economic worth
Your posts are moderated
Related Questions
how to perform division of two laurent polynomials?

Fire safety management on railway stations: Storage  tanks  are  not  allowed  above  underground  structures  or  within  a  certain distance of them. Some staff exits are

how to get ns2 coding for nash equilibrium


In Corporate finance, Experts engaged in this occupation have the liability to increase the organization's revenue, shareholder's money, investment spending budget and determining

Engineering Signals A signal is a variation of a measurable quantity that conveys information about the behaviour of a system. • A signal can depend upon a single variable o

Q.   Explain the compositional defects. Ans. Compositional Defect: This defect due to (a)    Alloying an element to original crystal. (b)   Impuring atom during origi

Q. What is Recovery and Recrystallization? Ans. Due to the cold working of metals there arise a large number of dislocations and distortion of planes. Cold working of metals

The oil pressure indicator : The oil pressure indicator has a dial normally calibrated in pounds per square inch (psi). The indicator may have max. limit markers, but will alw

Explain and identify the different sources of finances which are available to businesses and which sources of finance are internal sources and which are external sources?