Applications of Money - Time Relationships

4 important questions on Applications of Money - Time Relationships

What are [5] methods for evaluation of economic profitability of a single proposed problem solution?

  1. NPV | Net Present Value or PW | Present Worth
  2. FW | Future Worth
  3. AW | Annual Worth
  4. IRR | Internal Rate of Return
  5. ERR | External Rate of Return

What are [4] considerations in determining the MARR?

  1. The amount of money available for investment, and the source and cost of these funds;
  2. The number of good projects available for investment and their purpose whether they sustain present operations and are essential, or whether they expand on present operations;
  3. The amount of perceived risk associated with investment opportunities available to the firm and the estimated cost of administering projects over short planning horizons versus long planning horizons;
  4. The type of organization involved;

When is a project attractive evaluating AW?

As long as the AW evaluated at the MARR is greater than or equal to zero, the project is economically attractive.
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What are [2] difficulties coming with the application of IRR?

  1. Computational difficulties
  2. Occurence of multiple IRRS in some types of problems


Careful application is required in the analysis of two or more alternatives when only one of them is to be selected.

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