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Lesson 5: Chapter 6
Annual Cash Flow Calculations
Annual Cash Flow Analysis
Applying Annual Cash Flow Techniques
Useful Lives Equal the Analysis Period
Useful Lives Different from the Analysis Period
Infinite Analysis Period
10
P=1000
10
10
P=1000
n-1
= ( , , ) ( , , )
= ( )( , , ) + ()
= ( )( , , ) + ()
6
Year
Maintenance and
Repair Cost
45
90
180
135
225
PWCost
180
135
90
45
Maintenance
and Repair Cost
45
90
135
180
225
225
135
180
90
45
0
= 45 + 45 , 7%, 5 = $129
This value is already an A, so we dont need to do anything to it
Criterion
Device A
300
A=300
0
1
P=1000
350 400
2
450
500
P=1350
Plan B
Plan C
$15,000
$25,000
$33,000
$14,000
$9,000
$14,000
$8,000
$6,000
$6,000
$1,500
$2,500
$3,300
EUAB =
Plan A
$14,000
104
$14,104
Plan B
$9,000
172
$9,172
Plan C
$14,000
228
$14,228
EUAC =
EUAW = EUAB EUAC =
$2,235
8,000
$10,235
$3,869
$3,725
6,000
$9,725
-$553
$4,917
6,000
$10,917
$3,311
11
Pump A
$7,000
$1,500
12
Pump B
$5,000
$1,000
6
, 7%, 12
12
13
14
Pump B
Initial cost
$7,000
$5,000
$1,500
$1,000
12
Maintenance
Useful life
Salvage value
Pipeline
$5.5 million
$5 million
Permanent
50 years
= = 5.5(6%) = $330,000
= 5.5( , 6%, 50) = $317,000
16
Analysis Period
Alternatives
Initial Cost
Alt. 1
$50,000
Alt. 2
$75,000
$10,000
$12,000
Useful Life
Estimated market value, end of 10-year
7 years
$20,000
13 years
$15,000
1 = 50,000 +
17
Purpose
IPMT (i, x, n, -P, [F], [Type]) To find the interest portion in the xth payment
PPMT (i, x, n, -P, [F],
[Type])
18
Month
0
1
2
3
4
5
6
12.00
10.02
8.04
6.04
4.04
2.03
Principal
Payment
395.03
397.00
398.99
400.98
402.99
405.00
Ending
Balance
2400.00
2004.97
1607.97
1208.98
807.99
405.00
0.00
19
20
21