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Q.4 The following cash flow is associated with a project under consideration in your company. Determine the annual worth of t

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Answer #1

Answer :

Step 1: First calculate net present value of the cashflows:

NPV = CF0 + CF1/(1+r)1 + CF2/(1+r)2+................................+CFn/(1+r)n

r = rate of interest(MARR) = 13%

Putting cash flows in the formula above , we get:

= -50,000 + 12,000/(1+0.13)1 + 8000/(1+0.13)2 + (-11,000)/(1+0.13)3 + 6000/(1+0.13)4 + 8000/(1+0.13)5 + 10,000/(1+0.13)6 + 12,000/(1+0.13)7 + 14,000/(1+0.13)8 + (-4000)/(1+0.13)9 + 16,000/(1+0.13)10 + 12,000/(1+0.13)11 + 8000/(1+0.13)12 + 4000/(1+0.13)13

NPV = -$8,374.22

Step 2 : Equivalent annual worth = r (NPV)/ (1-(1+r)-n)

r = 13% and n = 13 years

Putting the values in the formula we get :

= 0.13(-8374.22) / (1-(1+0.13)-13)

= $-1,367.93

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