Present Worth Analysis of Capital Projects Using a Polynomial Cash Flow Model
Mathematical Sciences (CGU), Engineering (HMC)
An economic model for present worth analysis of capital expenditures is developed, assuming discrete compounding of interest. Closed-form solutions are presented for computing the present worth of projects with periodic cash flow profiles that can be approximated by polynomial functions. Simplified solutions for the present worth are presented for two limiting cases: extended project lifetime and negligible interest rate. Also, a simplified expression providing an accurate present worth estimate can be used for many U.S. Government projects. These results are especially convenient for comparisons of economic alternatives, and risk and sensitivity analyses. In addition, a sensitivity analysis of the model based on graphical results and an industrial example illustrating the use of the model are presented.
Copyright © 1980 Published by Elsevier B.V.
Brian Almond, Donald S. Remer, Present worth analysis of capital projects using a polynomial cash flow model, Engineering Costs and Production Economics, Volume 5, Issue 1, June 1980, Pages 33-42, ISSN 0167-188X, 10.1016/0167-188X(80)90016-6.