Present Worth Index
Present worth index compares the present worth of savings or benefits to the required investment.
$$PWI=\frac{\text{Present worth of annual savings}}{\text{Investment}}$$
Present worth index compares the present worth of savings or benefits to the required investment.
Investment is P30,000, annual net savings is P12,600, useful life is 9 years, and MARR is 12%. Compute the present worth index.
Final answer: 2.24.
A project has first cost $500,000 split between years 0 and 1. Net annual income of $90,000 begins at year 2 for 10 years. At 10%, calculate PWI.
Present worth at year 1 of the 10-year net annual income is $553,011, then discounted to year 0 gives $502,737.
Final answer: 1.01.
A project has present worth of benefits P560,000 and present worth of costs P420,000. Find the present worth index.
Answer: The present worth index is 1.33.
A project has PWI = 0.92. State the decision if projects are accepted only when PWI is at least 1.00.
Since 0.92 is less than 1.00, benefits do not recover the present worth of costs.
Answer: Reject the project under the PWI criterion.
Project A has PWI = 1.18 and Project B has PWI = 1.31. If only one independent project can be chosen, which ranks higher by PWI?
The higher index gives more present worth benefit per peso of present worth cost.
Answer: Project B ranks higher by PWI.