Module No. 09
Future Worth Method
Engineering
Economics
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Future Worth Method-Engineering Economics-Lecture Slides, Slides of Microeconomics
This lecture is part of lecture series for Engineering Economics course at M. J. P. Rohilkhand University. It was delivered by Dr. Badrinath Singh to cover following points: Supply, Demand, Markets, Work, Forces, Perfect, Competition, Monopoly, Quantity, Law, Curve
Typology: Slides
2011/2012
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Module No. 09
Future Worth Method
Engineering
Economics
Introduction
Besides the technical, manufacturing, and marketing decisions
that are needed, an engineer must become familiar with the
necessity of economic decision making. It is used to analyze the
economics of a situation so that combined with all the other
issues, an intelligent decision can be made.
Like most aspects of a decision making process, there are many
alternatives to the economic decisions.
In this method of comparison, the future worth of various
alternatives will be computed.
The alternative with the maximum future worth of net revenue or
With minimum future worth of cost will be selected as the best
alternative for implementation.
Cost-dominated cash flow analysis is given as:
FW = P(I + i)n^ + C 1 (1 +i)n-1^ + C 2 (1 +i)n-2^ + …….…+ Cj(1 +i)n-j
+……….+ Cn - S
P = Initial investment
Cj = cost of operation &maintenance at the end of jth year.
S = Salvage value at the end of nth year.
In this formula expenditures are assigned positive sign and
revenue a negative sign.
If there are more alternatives which are to be compared, FW
amounts are computed and compared,
the alternative with the minimum Future worth amount should
be selected as the best alternative.
Cost-Dominated cash flow analysis
Practice Questions
Consider the following two mutually exclusive alternatives
at i = 18%, select the best alternative based on future worth
method of comparison.
End of the year
Alternative 0 1 2 3 4
A -5000 2000 2000 2000 2000
B -4500 1800 1800 1800 1800
Practice Questions
The cash flows of two mutually exclusive alternatives are
given as: all figures in (000)
Select the best alternative based on future worth method
at i = 8%
Option A
Option B
M/S Krishna Castings Ltd. is planning to replace its annealing furnace.
It has received tenders from three different original manufacturers of annealing furnace. The details are as follows:
Which is the best alternative based on future worth method at i = 20%
Initial cost 80,00,000 70,00,000 90,00, Life (years) 12 12 12 Annual Operation & Maintenance cost
Salvage value after 12 years