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    Lecture #4 Pt. 2 Sample

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    Alexces Tolentino
    This document provides an example of evaluating an investment project using multiple methods. It analyzes a $50,000 initial investment project that returns $18,000 per year for 4 years using the present worth, future worth, annual worth, internal rate of return, external rate of return, payback period, explicit reinvestment rate of return, and benefit cost ratio methods. All methods indicate the project is a good investment as the calculated rates or ratios exceed the minimum attractive rate of return of 12%.

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    Lecture #4 Pt. 2 Sample

    Uploaded by

    Alexces Tolentino
    3 views7 pages
    This document provides an example of evaluating an investment project using multiple methods. It analyzes a $50,000 initial investment project that returns $18,000 per year for 4 years using the present worth, future worth, annual worth, internal rate of return, external rate of return, payback period, explicit reinvestment rate of return, and benefit cost ratio methods. All methods indicate the project is a good investment as the calculated rates or ratios exceed the minimum attractive rate of return of 12%.

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    Lecture #4 pt. 2 Sample(1)

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    This document provides an example of evaluating an investment project using multiple methods. It analyzes a $50,000 initial investment project that returns $18,000 per year for 4 years using the present worth, future worth, annual worth, internal rate of return, external rate of return, payback period, explicit reinvestment rate of return, and benefit cost ratio methods. All methods indicate the project is a good investment as the calculated rates or ratios exceed the minimum attractive rate of return of 12%.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pdf or txt
    3 views7 pages

    Lecture #4 Pt. 2 Sample

    Uploaded by

    Alexces Tolentino
    This document provides an example of evaluating an investment project using multiple methods. It analyzes a $50,000 initial investment project that returns $18,000 per year for 4 years using the present worth, future worth, annual worth, internal rate of return, external rate of return, payback period, explicit reinvestment rate of return, and benefit cost ratio methods. All methods indicate the project is a good investment as the calculated rates or ratios exceed the minimum attractive rate of return of 12%.

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    © All Rights Reserved
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    of 7

    School of

    Civil,
    Environmental and
    Geological
    Engineering

    CE40-2
    ENGINEERING
    ECONOMICS
    Engr. Albert T. Salud
    Sample Problem using all
    method
    Using all the Method

    Consider a project that has an initial investment of $50,000 and


    that returns $18,000 per year for the next four years. If the
    MARR is 12%, is this a good investment?
    Using all the Method

    Present Worth:
    =-50k + 18k [(1.12)⁴-1 / 0.12(1.12)⁴
    =$4,679.29 therefore: Good Investment

    Future Worth:
    =-50k + 18k [(1.12)⁴-1 / 0.12
    =$36,027.90 therefore: Good Investment

    Annual Worth:
    =-50k [0.12(1.12)⁴ / (1.12)⁴-1]+18k
    =$1,538.28 therefore: Good Investment
    Using all the Method

    Internal Rate of Return:


    18,000[(1+i)⁴-1 / (1+i)⁴ ] -50k = 0
    i=16.37% > 12% therefore: G.I.

    External Rate of Return:


    50k(1+i)⁴=18k[(1.12)⁴-1 / 0.12]
    i=14.53% > 12% therefore: G.I.

    Payback Period:
    -50k+18k(1.12)⁻¹+18k(1.12)⁻²+18k(1.12)⁻³+18k(1.12)⁻⁴ = ?
    =$4,672.29
    Using all the Method
    To Calculate for the payback period “n”
    P = A[(1+i)ⁿ-1 / i(1+i)ⁿ

    Pi(1+i)ⁿ= A (1+i)ⁿ - A

    Pi(1+i)ⁿ- A (1+i)ⁿ = -A

    (1+i)ⁿ = - (A/Pi-A)

    n(1n)(1+i)= 1n[-(A/Pi-A)]

    n=1n[-(A/Pi-A)] / 1n(1+i) = 1n[-(18k/50(0.12)-18k)]

    n= 3.58 years
    Using all the Method
    Explicit Reinvestment Rate of Return:

    ERRR= 18,000/50,000

    = 36%

    Benefit Cost Return:

    BRC= 18k[(1.12)⁴-1/0.12(1.12)⁴] /50k

    = 1.09 > 1.00

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