1. Present Worth Analysis
(Investopedia, 2017)
CEE 4200
Fall 2017

2. Today’s Learning Objectives
Formulate alternatives
Use present worth to select project(s) to implement
Equal service life projects
Projects with different lives
Infinite life projects (capitalized costs)
Independent projects
Revise and resubmit PBL-2

3. The Basic Approach (Mutually Exclusive Projects)
Calculate the present worth for each project (all benefits and costs)
Choose the project with largest present value (most positive, least negative)
Project
Present Worth ($)
Alpha
$105,000
Bravo
$122,000
Charlie
- $30,000

4. Example 1. Use present worth analysis to determine which heavy-duty lawnmower to purchase
Attribute
Gas-Powered
Electric-Powered
First cost ($)
2,500
3,300
Annual cost ($/year)
900
550
Salvage value ($)
350
200
Life (years) 5
MARR (%)
10%

5. Example 2. Which fence pickets to purchase?
Attribute
Pine
Cedar
First cost ($)
2,500
6,250
Annual cost ($/year)
300 75
Life (years) 3 9
MARR (%)
10%

6. Infinite Life Projects (capitalized cost)
Draw cash flow diagram for 2 cycles
Calculate present worth of all one-time costs/benefits
Calculate equivalent annual worth for 1 cycle of recurring costs
Divide #2 by the interest rate and add to #1

7. Example 3. What is the capitalized cost today to maintain the Golden Gate Bridge in perpetuity (8% MARR)?
Maintenance Item
Cost ($ Mill)
Frequency
Replace rivets
$12
1 year
Paint bridge
$22
6 years
Resurface deck
$35
10 years

8. Independent Projects (can do one or more)
Unlimited budget
Select all projects with PW > 0 at MARR
Budget constrained
Calculate PW for all projects
Chose projects with PW > 0 (Rate of Return > MARR)
Identify project combinations (bundles) with total initial investment < budget
Find PW for each bundle
Select bundle with largest PW

9. Example 4. Which skis to add to your quiver if you have $900 to spend?
Ski Type
Initial Cost
Present Value
A. Resort – Powder
$550
$1,700
B. Resort – Mogels
$450
($240)
C. Resort - Groomers
$610
$1,100
D. Backcountry – AT
$670
$2,300
E. X-Country (stride)
$200
F. Ski Swap (rock skis)
$90
$250