future amount of money converted to its equivalent value now has a present worth
(PW) that is always less than that of the future cash fl ow, because all P F factors have
a value less than 1.0 for any interest rate greater than zero. For this reason, present
worth values are often referred to as discounted cash fl ows (DCF) , and the interest rate is referred
to as the discount rate. Besides PW, two other terms frequently used are present value
( PV ) and net present value ( NPV ). Up to this point, present worth computations have been
made for one project or alternative. In this chapter, techniques for comparing two or more
mutually exclusive alternatives by the present worth method are treated. Two additional applications
are covered here—future worth and capitalized cost. Capitalized costs are used for
projects with very long expected lives or long planning horizons.
To understand how to organize an economic analysis, this chapter begins with a description
of independent and mutually exclusive projects as well as revenue and cost
alternatives.
future amount of money converted to its equivalent value now has a present worth(PW) that is always less than that of the future cash fl ow, because all P F factors havea value less than 1.0 for any interest rate greater than zero. For this reason, presentworth values are often referred to as discounted cash fl ows (DCF) , and the interest rate is referredto as the discount rate. Besides PW, two other terms frequently used are present value( PV ) and net present value ( NPV ). Up to this point, present worth computations have beenmade for one project or alternative. In this chapter, techniques for comparing two or moremutually exclusive alternatives by the present worth method are treated. Two additional applicationsare covered here—future worth and capitalized cost. Capitalized costs are used forprojects with very long expected lives or long planning horizons.To understand how to organize an economic analysis, this chapter begins with a descriptionof independent and mutually exclusive projects as well as revenue and costalternatives.
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