2010 Volume 59 Issue 12 Pages 448-451
Cash flows are important in engineering economy since they form the basis for evaluating alternatives. The Present Worth (PW) method is popular because all future cash flows are converted into present dollars and makes it easy to determine the economic advantage of one alternative over another.
The PW is determined by using the equation PW = FW(1+r)−N, where PW : present worth, FW : future worth, r : discount rate, N : compounding period. The factor (1+r)−N is known as the present worth factor. If discount rates remain constant at r% for the PW, FW, AW, all three values are equivalent. Hence, the AW and FW values can be easily computed for a project from the equivalent PW value.
In this report, the relationship between the PW factors and time for different rates, the examples of equivalence calculation of the FW and AW values from the PW value, and the examples of the application of the PW method to port structures are shown.