Question

You are considering buying a delivery van for your company. It will cost​ $35,000 right now​ (Year 0), and you estimate that with the​ van, your profits will be​ $7,500 per year for Years 1 through 10. At the end of Year​ 10, you think you can sell the van for​ $1,000. Assume a MARR of​ 18%.

a. What is the present worth of the​ van?

b. Is this investment worth​ considering?

a. What is the present worth of this​ equipment?

          

​$nothing  

​(Round to the nearest dollar. Note that this value could be positive or​ negative.)

b. Is this investment worth​ considering?

A.

No

B.

Yes

Answer 1

Below is the calculation of the PW of the van:

Year	CF	Discount Factor		Discounted CF
0	$   -35,000.00	1/(1+0.18)^0=	1	1*-35000=	-35,000.00
1	$       7,500.00	1/(1+0.18)^1=	0.847457627	0.847457627118644*7500=	6,355.93
2	$       7,500.00	1/(1+0.18)^2=	0.71818443	0.718184429761563*7500=	5,386.38
2	$       7,500.00	1/(1+0.18)^2=	0.71818443	0.718184429761563*7500=	5,386.38
4	$       7,500.00	1/(1+0.18)^4=	0.515788875	0.515788875151941*7500=	3,868.42
5	$       7,500.00	1/(1+0.18)^5=	0.437109216	0.437109216230459*7500=	3,278.32
6	$       7,500.00	1/(1+0.18)^6=	0.370431539	0.370431539178355*7500=	2,778.24
7	$       7,500.00	1/(1+0.18)^7=	0.313925033	0.313925033201996*7500=	2,354.44
8	$       7,500.00	1/(1+0.18)^8=	0.266038164	0.266038163730505*7500=	1,995.29
9	$       7,500.00	1/(1+0.18)^9=	0.225456071	0.225456070958055*7500=	1,690.92
10	$       7,500.00	1/(1+0.18)^10=	0.191064467	0.191064466913606*7500=	1,432.98
				Present Worth = Sum of all Discounted CF	-472.70

As present worth is negative, the investment is not worth it, because the profits are not recovering the costs on a discounted cf basis at the MARR of 18%