Future worth analysis in Engineering Economics

The basic ideas of "Future Worth Analysis" (FWA) in Engineering Economics are as follows:

1. When comparing alternatives, the future worth of alternatives are computed; the alternative with the maximum future worth (net) or with the minimum future worth of net cost will be chosen as the best choice.
2. Such an analysis could be more relevant to decision-makers if the accumulated amount at a future date is a kind of milestone in a financial plan.
3. FWA is also used for evaluating the effects of inflation.

Please refer to the textbook for the formula of Future Worth. Also note the following illustration on how to use the Excel function of =fv to calculate future values.

Exhibit 1: In this case, interest rate is 10%; number of period is 4 and the annuity amount (A) is $100; the fv function comes up with an answer of -464.10

Exhibit 2: Online help information of Excel on the FV function

Exhibit 3: Double check the FV figure with the compound interest rate tables from the subject of Engineering Economics (in this case from A(annuity) to F (future value):

References

1. Panneerselvam, R. (2001) "Chapter 5: Fugure Worth Method" in Engineering Economics, Prentice Hall of India
2. On future value: http://en.wikipedia.org/wiki/Future_value