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garr6120
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given a net future worth of $72700 after 5 years at 10% interest is it possible to convert it to an annual equivalent worth that is 20 years at 10% interest?
Sure. If you have a net present value of X, what annual payout can you take at 10% interest so that at the end of 20 years, all the principal is consumed? This is the same as an annuity of X at 10% interest for 20 years of payments.garr6120 said:I have $72700 worth of Future worth and I want to convert it in an annuity factor that is 20 years I have already found the compounded interest. I just want to know given Net present worth can I convert it into annual equivalent worth.
Is this a schoolwork question?garr6120 said:given a net future worth of $72700 after 5 years at 10% interest is it possible to convert it to an annual equivalent worth that is 20 years at 10% interest?
Engineering economics is a branch of economics that focuses on the application of economic principles and methods to analyze and evaluate engineering projects and systems. It involves using economic principles to make decisions about the design, development, and production of engineering projects.
NFW stands for net future worth, which is the present value of all future cash inflows minus the present value of all future cash outflows. AEW stands for annual equivalent worth, which is the uniform annual amount that is equivalent to the NFW over the project's life. In other words, it is the annual amount that would generate the same NFW if invested at a given interest rate.
Converting a NFW to an AEW is important in engineering economics because it allows for easier comparison and evaluation of projects with different cash flow patterns and timeframes. It also helps in decision-making by providing a uniform measure of project profitability and cost.
To convert a NFW to an AEW, you can use the annual equivalent formula, which is A = NFW * (i/1-(1+i)^-n), where A is the annual equivalent worth, NFW is the net future worth, i is the interest rate, and n is the number of years. Alternatively, you can use tables or software programs specifically designed for engineering economics calculations.
One limitation of using AEW is that it assumes a constant interest rate and cash flow over the project's life, which may not always be the case. It also does not take into account factors such as inflation, taxes, and other external factors that may affect the project's profitability. Additionally, the AEW method does not consider the time value of money and may not accurately reflect the project's actual worth. Therefore, it should be used in conjunction with other economic evaluation methods for a more comprehensive analysis.