Question

Jack Black, engineer extraordinaire, had just returned from taking a 30-page exam in his engineering management graduate program. His boss, Lucy (who certainly had a thing for diamonds and atmospheric sciences) asked Joe to evaluate a new project. Because Jack was quite discombobulated from his testing extravaganza he had a tough time. He persevered and brought Lucy two answers. A future worth that was > 0 and a present worth that was < 0. What should Lucy say to Jack?

Answer 1

Jack is incorrect.

Present worth (PW), Future worth (FW) and annual worth (AW) are the three capital budgeting techniques which never yield inconsistent results, unlike the conflict that might arise with PW and IRR criteria where NPV can be positive, allowing the project to be accepted, and IRR being less than the MARR (discount rate), allowing the project to be rejected.

Therefore, if any one of PW, FW and AW is positive, the other two must be positive. Likewise, if any one of PW, FW and AW is negative, the other two must be negative. So a positive future worth cannot be associated with a negative present worth.