Engineering Economic Analysis
FOURTEENTH EDITION
Donald G. Newnan
Chapter 5 San Jose State University
Present Worth
Ted G. Eschenbach
University of Alaska Anchorage
Analysis Jerome P. Lavelle
North Carolina State University
Neal A. Lewis
Fairfield University
Copyright Oxford University Press 2020 5-1
, Chapter Outline
◼ Assumptions in Solving Economic Analysis
Problems
◼ Economic Criteria
◼ Time Period for Analysis
◼ Multiple Alternatives
◼ Applications & Complications
Copyright Oxford University Press 2020 5-2
, Learning Objectives
◼ Apply the present worth (PW) criteria
◼ Compare 2 alternatives with PW
◼ Apply PW in cases with equal, unequal, & infinite
project lives
◼ Compare multiple alternatives
◼ Use spreadsheets for PW calculations
◼ Compute bond prices & yields
Copyright Oxford University Press 2020 5-3
, Vignette: Present Value of
30 Years of Benefits
◼ Columbia River has 1/3 of hydroelectric potential in U.S.;
watershed vulnerable to seasonal flooding
◼ U.S. & Canada signed treaty for dams to regulate flow &
harvest power
◼ Canada stores 15.5 million acre feet water using 3 dams
◼ British Columbia entitled to ½ of electrical power from dams
in U.S.
◼ Canada entitled to ½ flood control benefits in U.S.
◼ Value of 1st 30 years at 4.5% interest rate paid in lump sum of
$254.4M in 1964
◼ Annual payments of about $250M to $350M each year since 1994
from U.S. to British Columbia
Copyright Oxford University Press 2020 5-4
FOURTEENTH EDITION
Donald G. Newnan
Chapter 5 San Jose State University
Present Worth
Ted G. Eschenbach
University of Alaska Anchorage
Analysis Jerome P. Lavelle
North Carolina State University
Neal A. Lewis
Fairfield University
Copyright Oxford University Press 2020 5-1
, Chapter Outline
◼ Assumptions in Solving Economic Analysis
Problems
◼ Economic Criteria
◼ Time Period for Analysis
◼ Multiple Alternatives
◼ Applications & Complications
Copyright Oxford University Press 2020 5-2
, Learning Objectives
◼ Apply the present worth (PW) criteria
◼ Compare 2 alternatives with PW
◼ Apply PW in cases with equal, unequal, & infinite
project lives
◼ Compare multiple alternatives
◼ Use spreadsheets for PW calculations
◼ Compute bond prices & yields
Copyright Oxford University Press 2020 5-3
, Vignette: Present Value of
30 Years of Benefits
◼ Columbia River has 1/3 of hydroelectric potential in U.S.;
watershed vulnerable to seasonal flooding
◼ U.S. & Canada signed treaty for dams to regulate flow &
harvest power
◼ Canada stores 15.5 million acre feet water using 3 dams
◼ British Columbia entitled to ½ of electrical power from dams
in U.S.
◼ Canada entitled to ½ flood control benefits in U.S.
◼ Value of 1st 30 years at 4.5% interest rate paid in lump sum of
$254.4M in 1964
◼ Annual payments of about $250M to $350M each year since 1994
from U.S. to British Columbia
Copyright Oxford University Press 2020 5-4
