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kim1234
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Homework Statement
i just have a simple question. in engineering economy, when you're comparing alternatives and they don't tell you whether to use PW, FW, or AW method, can you just use any one?
kim1234 said:Homework Statement
i just have a simple question. in engineering economy, when you're comparing alternatives and they don't tell you whether to use PW, FW, or AW method, can you just use any one?
Homework Equations
The Attempt at a Solution
The Present Worth (PW) method is a technique used in engineering economy to evaluate the profitability of a project. It involves converting all future cash flows into their equivalent value in the present time, using a selected interest rate or discount rate.
The Future Worth (FW) method is similar to the PW method in that it also involves converting all cash flows into their equivalent value in the future, using a selected interest or discount rate. However, the FW method looks at the future value of the project, while the PW method looks at the present value.
The Annual Worth (AW) method is another technique used in engineering economy to evaluate the profitability of a project. It calculates the equivalent annual cost of a project, taking into account the initial investment, annual revenues, and annual expenses over the project's life.
All three methods (PW, FW, and AW) are used to evaluate the profitability of a project by converting all cash flows into the present, future, or annual equivalent values. They differ in the specific approach and focus, but they can all be used to compare different projects and determine the most financially feasible option.
One limitation is that these methods do not account for inflation or changes in interest rates over the project's life. Additionally, they do not consider the time value of money, which can affect the project's profitability. These methods also assume that all cash flows are known and certain, which may not always be the case in real-life projects.