Perpetuity Example Equivalent Annual Worth永恒的例子amp相当于每年的价值.pptVIP

* Reviewing Complex Flow Perpetuity If there is a mix of recurring and non-recurring or one-time cash flows that must be capitalized for perpetuity: 1.) finding the NPW of all the one-time, non-recurring cash flows (= CCPart 1 ) 2.) finding the Annual Equivalent of one cycle of all the recurring cash flows, and then computing P (= CCPart 2) from the perpetuity relationship A = P(i) 3.) summing (1.) and (2.) to find the total capitalized cost: CCTotal = CCPart 1 + CCPart 2 * Perpetuity Example A new football stadium will replace the current municipal stadium at an initial cost of $250 million. One year later, the old stadium will be demolished at a net cost of $1.5 million. Annual maintenance is expected to be $900 000, and every 15 years the skyboxes will be remodeled at a cost of $500 000. Find the capitalized cost if the discount rate is 10%, compounded annually. * Perpetuity Example DIAGRAM: 0 1 2 3 n= ? yrs 15 30 $500 K $500 K $1.5 M $250 M $900 K CC1 = $250 000 000 + $1 500 000 (P|F,10%,1) = $ 251 363 650 CC2 = $900 000 + $500 000 (A|F,10%,15) = $ 9 157 500 0.10 CCT = CC1 + CC2 = $251 363 650 + $9 157 500 = $ 260 521 150 * Reviewing…NPW Two approaches to handle differing project lives: Common Multiple Period: Projects are assumed to be repeated until a common multiple point in time is established. Study Period: Select a study period for both projects and estimate cash flows to conform to the study period. * Equivalent Annual Worth Analysis Equivalent Annual Worth (EAW) can be used to compare projects. Equivalent Annual Cost (EAC) can be used instead of EAW if revenues are not included. EAC = – EAW * EAW and Types of Projects: Revenue projects are expected to make money at a rate at least as high as the MARR, so select largest EAW that is ? 0. Service projects are “have to do” situations, so select largest EAW (lowest EAC). Equivalent Annual Worth Analysis * Capital Cost Recovery For a capital purchase (P) wi