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Why is the analysis period important when comparing different alternatives under the Present Worth method

Why is the analysis period important when comparing different alternatives under the Present Worth method

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Answer #1

Three different analysis-period situations occur in present worth:

1. The useful life of each alternative equals the analysis period.

2. The alternatives have useful lives different from the analysis period (and from each other).

3. The analysis period is effectively infinite.

The analysis period to use in a comparison of mutually exclusive projects may be chosen by an individual analyst. Several efficiencies can be applied when we select an analysis period. In general, the analysis period should be chosen to cover the required service period.

Therefore analysis period is really important present worth analysis.

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