EECO101
ENGINEERING ECONOMY
Future Worth
Method
Objective:
To evaluate the feasibility of a proposal using
• Future Worth Method
FUTURE WORTH METHOD (FW)
• It is very useful in capital investment decision
situations.
• It is based on the equivalent worth of all cash inflows
and outflows at the end of the planning horizon at an
interest rate that is generally MARR.
• If FW of the project is greater than or equal to zero,
the project is acceptable.
FUTURE WORTH METHOD (FW)
N
FW (i%) =  Fk (1 + i)
N −k
k =0
Where:
i = effective interest rate, or MARR per compounding period
k = index for each compounding period
Fk = Future cash flow at the end of period k
N = number of compounding periods in the planning horizon
Example 1
• Using the same setup in Example 1 of Present Worth
Method, evaluate the FW of the potential
improvement project. Show the relationship between
FW and PW.
$5,000
$8,000
0
$8,000
1
2
$8,000
$8,000
3
4
$8,000
5
MARR=20%
$20,000
(1 + 0.2)5 −1
𝐹𝑊 = $8000
+ $5000 − $20,000(1 + 0.2)5
0.2
𝐹𝑊 = $14,766.40
(Acceptable)
$5,000
$8,000
0
$8,000
1
2
$8,000
$8,000
4
3
$8,000
5
MARR=20%
$20,000
𝐹𝑊 = $14,766.40
𝑃𝑊 = $5,934.28
𝐹𝑊 = 𝑃𝑊(1 + 𝑖)𝑛
Example 2
• Using the same setup in Example 2 of Present Worth
Method, use the FW Method to determine whether the
project is still economically justified if the system has
zero market value after 6 years. MARR is 15% per year.
0
$30,000
$30,000
$30,000
$30,000
1
2
3
4
$30,000 $30,000
5
6
MARR=15%
$110,000
(1 + 0.15)6 −1
𝐹𝑊 = $30000
− $110,000(1 + 0.15)6
0.15
𝐹𝑊 = $8,175.47
(Acceptable)
Special thanks to
Dr. Lito E. Suello
for the slides