The annual worth method of comparing alternatives is often preferred to the present worth method, because the AW comparison is performed for only one life cycle. This is a distinct advantage when comparing different-life alternatives. AW for the first life cycle is the AW for the second, third, and all succeeding life cycles, under certain assumptions. When a study period is specified, the AW calculation is determined for that time period, regardless of the lives of the alternatives. As in the present worth method, the remaining value of an alternative at the end of the study period is recognized by estimating a market value. For infinite-life alternatives, the initial cost is annualized simply by multiplying P by i. For finite-life alternatives, the AW through one life cycle is equal to the perpetual equivalent annual worth. |
2002 McGraw-Hill Higher Education