Present Worth on Incremental Investment

The present worth on incremental investment method is demonstrated first. In a nutshell, a candidate is considered better than the current best if the present worth, evaluated at the MARR, of the differential cash-flow stream is greater than $0.

The step-by-step process is as follows:

1.
List the alternatives in order of increasing initial investment.
2.
Select the alternative with the smallest initial investment as the current best. (This will usually be the do nothing alternative.)
3.
For each of the remaining alternatives, do the following:
3a. Subtract the current best's cash-flow stream from the candidate's.
3b. Calculate the present worth at the MARR of this differential cash-flow stream.
3c. And if ...

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