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Annual Cash Flow Analysis

Annual Cash Flow Analysis. Chapter 6: Newnan, Eschenbach , and Lavelle Dr. Hurley’s AGB 555 Course. Three Major Annual Cash Flow Metrics. Equivalent Annual Uniform Cost (EUAC)

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Annual Cash Flow Analysis

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  1. Annual Cash Flow Analysis Chapter 6: Newnan, Eschenbach, and Lavelle Dr. Hurley’s AGB 555 Course

  2. Three Major Annual Cash Flow Metrics • Equivalent Annual Uniform Cost (EUAC) • This calculations takes all present and future costs and turns them into a uniform annuity over the period that costs are incurred • Equivalent Annual Uniform Benefit (EUAB) • This calculations takes all present and future benefits and turns them into a uniform annuity over the period that costs are incurred • Equivalent Annual Uniform Worth (EUAW) • EUAW = EUAB-EUAC

  3. The Analysis Period in Terms of Its Cash Flow Comparison • When we put investment decisions in terms of EUAC, EUAB, and EUAW, then the length of the analysis period does not matter much as long as a) at the end of an alternatives useful life, it is replaced with a identical alternative, or b) the analysis period is a common multiple of the useful lives of the alternatives, or c) there is a perpetual requirement for the selected alternative • Why do you think this is true? • This is different than the situation for present worth analysis

  4. Cash Flow Analysis and Spreadsheets • IPMT(rate, period, number of periods, present value, future value, type) • This function will calculate the amount of interest that is being paid in a particular period for loans with a constant payment • PPMT(rate, period, number of periods, present value, future value, type) • This function will calculate the amount of principal that is being paid in a particular period for loans with a constant payment

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