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$$
(B) $$ Cash Flow Profile
Budget
nj
A -$8,000 $3,870 6
B -15,000 2,930 9
C -8,000 2,680 5
D -8,000 2,540 4
6 AD 5,898
7 CD 235
8 Do Nothing 0
Select { AC } for $16,000: $4,000 assumed
invested at the MARR
Two Independent Bundles A and B
o Assume two independent projects, A and B;
o Life of A = nA;
o Life of B = nB;
o A B (unequal lives).
o Assume A and B have the same net cash flow each time
period.
Notation for Unequal Life Problem
o nL = life of the longer lived project;
o nj = life of the shorter lived project;
o nA = Life of A
o nB = Life of B
o Diagram the two cash flows on the next slide.
Unequal-Life Projects; A and B
FWB
PWB
nB = nL
B Investment
Longer life Project: i = MARR
For B
FWA
PWA FW
Period of reinvestment @
MARR
A nA nL
Investment
For A
Shorter Project: A with Reinvestment
FWA
PWA FW
A Period of reinvestment @
MARR
nA nL
Investment
For A
Compute the FW from nA out to nL of A.
Assumed to be reinvested at the MARR rate!
Yield FWA given reinvestment at the MARR rate.
Then, find PWA from FWA at the MARR rate.
Bundling A and B: Unequal Lives
o Now A and B have unequal lives;
o If reinvestment at the MARR is assumed for the shorter-
life project out to the life of the longer life project, then:
o One can create a bundle of A and B by computing;
o PWBundle = PWA + PWB
C and D in Example 2
Project Init. Inv. ANCF Life
C -$8,000 $2,680 5
D -8,000 2,540 4
$2,680 (C)
0 1 2 3 4 5 6 7 8 9