---
title: "Evaluate project using AW at 12%"
subject: "Engineering Economics"
chapter: 3
key: "semester_6/engineering_economics:aw-project-12-percent"
source: https://www.bctengineer.com/q/semester_6/engineering_economics/aw-project-12-percent
site: BCT Engineering
---

# Evaluate project using AW at 12%

Engineering Economics · Chapter 3: Basic Methodologies of Engineering Economic Analysis

- Asked in: 2076 Shrawan, 6 marks
- Video: [FE Review - Engineering Economics - Present Worth (PW) & Equivalent Uniform Annual Cost (EUAC)](https://www.youtube.com/watch?v=ddPhItXXdXo) — FE MADE EASY
- Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14
- Page: https://www.bctengineer.com/q/semester_6/engineering_economics/aw-project-12-percent
- Whole chapter: https://www.bctengineer.com/md/semester_6/engineering_economics/chapter-3

## Question

Evaluate the project by using AW formulation of the project at i = 12%.
| EOY | 0 | 1 | 2 | 3 | 4 | 5 |
|---|---|---|---|---|---|---|
| Cash flow | -3000 | 800 | 1000 | 1100 | 1210 | 1464 |

## Short answer

The annual worth is found by converting the cash flows to an equivalent uniform amount at 12%. AW = +Rs 248.04 per year, which is greater than zero, so the project is acceptable.

## Answer

AW is the equivalent uniform annual amount of all cash flows: AW = PW × (A/P, i, N). If AW > 0, the project earns more than the MARR (12%) and is accepted.

```text
 EOY : 0      1    2     3     4     5
 CF  : -3000  800  1000  1100  1210  1464
```
**Step 1: PW at 12%**

| EOY | CF | (P/F, 12%, t) | PW |
|---|---|---|---|
| 0 | -3,000 | 1.0000 | -3,000.00 |
| 1 | 800 | 0.8929 | 714.29 |
| 2 | 1,000 | 0.7972 | 797.19 |
| 3 | 1,100 | 0.7118 | 782.96 |
| 4 | 1,210 | 0.6355 | 768.98 |
| 5 | 1,464 | 0.5674 | 830.71 |
| Sum | | | 894.13 |

**Step 2: AW**
- (A/P, 12%, 5) = 0.12 / [1 − (1.12)^-5] = 0.27741
- AW = 894.13 × 0.27741 = Rs 248.04 per year

**Answer: AW(12%) = +Rs 248.04 per year > 0, so the project is acceptable.**

## Check yourself

The answer's key points as multiple-choice questions, with the correct option and why.

1. What is AW?
   A. The total of all cash flows
   B. The equivalent uniform annual amount of all cash flows
   C. The cash flow in year 1
   D. The future worth at year 5
   Answer: B. AW = PW x (A/P, i, N). (Key point: AW meaning)

2. What is the correct route to AW?
   A. Find PW at 12% (894.13), then multiply by (A/P, 12%, 5)
   B. Multiply PW by (P/A, 12%, 5)
   C. Average the cash flows
   D. Multiply PW by (F/P, 12%, 5)
   Answer: A. AW = 894.13 x 0.27741 = Rs 248.04 per year. (Key point: Computing AW)

3. AW is +Rs 248.04. What does this mean?
   A. The project is rejected
   B. The project earns exactly 12%
   C. The project earns more than 12% and is accepted
   D. The result is invalid for 5-year projects
   Answer: C. AW > 0 means return exceeds MARR. (Key point: Decision)

## Related in Engineering Economics

- [AW sensitivity to investment and net annual cash flow](https://www.bctengineer.com/question.md?key=semester_6%2Fengineering_economics%3Asensitivity-aw-500000-75000) — Engineering Economics, chapter 6
- [Both types of payback period, 3000 investment](https://www.bctengineer.com/question.md?key=semester_6%2Fengineering_economics%3Apayback-both-3000-cash-flow) — Engineering Economics, chapter 3
- [Both payback periods, is project acceptable](https://www.bctengineer.com/question.md?key=semester_6%2Fengineering_economics%3Apayback-both-types-acceptable) — Engineering Economics, chapter 3
- [Socialistic economy and cash flow diagram](https://www.bctengineer.com/question.md?key=semester_6%2Fengineering_economics%3Asocialistic-economy-cash-flow-diagram) — Engineering Economics, chapter 1
- [After-tax cash flow, DDB with switchover](https://www.bctengineer.com/question.md?key=semester_6%2Fengineering_economics%3Aafter-tax-cash-flow-ddb-switchover) — Engineering Economics, chapter 7
- [After-tax cash flow, sinking fund depreciation](https://www.bctengineer.com/question.md?key=semester_6%2Fengineering_economics%3Aaftertax-cash-flow-sinking-fund-25000) — Engineering Economics, chapter 7

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