Fuzzy Decision Analysis for Alternative Selection Using a Fuzzy Annual Worth Criterion

Very often, in industry, discounted cash flow techniques are applied for analyzing and selecting investment alternatives under consideration. These techniques are usually based on the data under certainty or risk. In reality, however, the decision makers are often facing the situation of vague cash flows and discount rates, or even uncertain durations, when evaluating and selecting potential investments. Fuzzy set theory has the capability of capturing vague data and allows mathematical operations. This article proposes a fuzzy equivalent uniform annual worth (fuzzy EUAW) method to assist practitioners in evaluating investment alternatives utilizing the theory of fuzzy sets. Triangular fuzzy numbers (TFNs) are used throughout the analysis to represent the uncertain cash flows and discount rates. Further, fuzzy capital recovery factors and fuzzy sinking fund factor are derived. Using these two factors, the fuzzy equivalent annual worth of each investment alternative can be found. By ranking these fuzzy numbers with the integral value, the optimal investment alternative is selected. A numerical example is provided to illustrate the results of the alternative selection.