Overnight I have been reading The Black Swan and a little about the economics of selecting alternatives.Habitually,am used to making a notes of whatever i read,ever since my mom taught me this.This is my 1st time of using blogger over a note-book,doesnt look much different except for the writing and typing actions.Hey,the keytabs dont actually support many of the mathematical symbols which could be used while representing the important expressions related with this subject,afterall humans are the best machines ;) .I have tried to use only the most important ones.
Firstly,The Present Worth Method :
This method evaluates the desirability of an alternative method relative to some base point in the present time(usually year 0).Basically,it looks at the present equivalent of all the cash flows of an alternative study period.
An alternative is profitable only if its present-worth(PW)>=0.When choosing from a set of alternatives,the most desirable alternative is the one which has the most positive PW.
To find PW as a function of i % (per interest period) of a series of cash inflows and outflows,it is necessary to discount future amounts to the present by using the interest rate over the appropriate study period(years,for ex) in the following manner :
PW(i%) = F0(1+i)^0 + F1(1+i)^-1 + F2(1+i)^-2 + .... + Fk(1+i)^-k + ... + Fn(1+i)^-n
= summation(i=0 to i=n) Fi(1+i)^-k
where,
i = effective interest rate or MARR,per compounding period.
k=index for each compounding period.
Fk=future cash flows at the end of period k.
N=number of compounding periods over the total planning time.
to be contd...
haha,what do u say when u feel like hanging up on a call u dont want to be on..call u later,right...
same way,this topic bores me and there is gonna be no furtherance on this .. :)
(nov 15th,09)
