ROR Calculation Using PW, FW or AW Relation ROR is the unique i* rate at which...

Transcribed Image Text:

ROR Calculation Using PW, FW or AW Relation ROR is the unique i* rate at which a PW, FW, or AW relation equals exactly 0 Example: An investment of $20,000 in new equipment will generate income of $7000 per year for 3 years, at which time the machine can be sold for an estimated $8000. If the company's MARR is 15% per year, should it buy the machine? Solution: The ROR equation, based on a PW relation, is: =-20,000+ 7000(P/A,i*,3) + 8000(P/F,i*,3) Solve for i* by trial and error or spreadsheet: i* = 18.2% per year Since i* > MARR = 15%, the company should buy the machine AMELEY ROR Calculation Using PW, FW or AW Relation ROR is the unique i* rate at which a PW, FW, or AW relation equals exactly 0 Example: An investment of $20,000 in new equipment will generate income of $7000 per year for 3 years, at which time the machine can be sold for an estimated $8000. If the company's MARR is 15% per year, should it buy the machine? Solution: The ROR equation, based on a PW relation, is: =-20,000+ 7000(P/A,i*,3) + 8000(P/F,i*,3) Solve for i* by trial and error or spreadsheet: i* = 18.2% per year Since i* > MARR = 15%, the company should buy the machine AMELEY