Question

Find Equivalent Annual Worth for the following Cash flow if i=3%:

Use excel to solve this question

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Year Cash flow, $ 0 0 1 2 3 4 5 6 7 own 550 $50 350 Step 1. Finding NPV 5110 $130 Step 2. Finding AT

Answer 1

We can determine the net present worth first then convert it to the Annual Equivalent

$\large NPW = 50(P/A,3\%,2) + [50(P/A,3\%,5)+20(P/G,3\%,5)]\times (P/F,3\%,2)$

$\large \implies NPW = 50\times 1.9134+ [50\times 4.5797+20\times 8.8887]\times 0.9425$

$\large \implies NPW = 95.67 + [228.98 + 177.77]\times 0.9425$

$\large \implies NPW = 95.67 + 406.76\times 0.9425$

$\large \implies NPW = 95.67 + 383.41$

$\large \implies NPW = \$ \ 479.08$

Now calculate the annual equivalent

$\large AE = NPW(A/P,3\%,7)= \$ \ 479.08\times 0.1605$

$\large \implies AE \approx \$ \ 76.90$

Refer the attached picture below the screenshot of excel sheet.

fx =NPV( CW68, CX60:CX66 ) CV CW СХ CY CZ Cash Flow Year 1.03 59 1 50 48.54368932 60 2 50 47.12979546 61 50 45.75708297 62 4 70 62.19409335 63 90 77.63479059 64 110 92.12326824 65 130 105.7018965 $479.08479.0846164 NPW 67 3% 68 $76.90 AE 69 Ln

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