a)$23,506 b) $24,658 c) $19,498 d)$19.320 28) You are considering making an $80,

Question

a)$23,506 b) $24,658 c) $19,498 d)$19.320 28) You are considering making an $80,000 investment in a process improvement project. Revenues are expected to grow from $50,000 in year 1 by $30,000 each year for next four years, ($50,000 first year, $80,000 second year, $110,000 third year, and so forth) while costs are expected to increase from $20,000 in year 1 by $10,000 each year. If there is no salvage value at the end of 5 years, what is the annual equivalent worth of the project assuming a MARR of 11%? a) $45,098 b) $44,200 c) $45,997 d)$43,300

Explanation / Answer

Present value of the cash inflow = $50000*Pvif + 80000* PVIF + 110000* PVIF + 140000 * PVIF + 170000 * PVIF

= $383492

present value of cash outflow = 20000* PVIF + 30000 *PVIF + 40000 *PVIF + 50000 *PVIF + 60000* PVIF

= $140150

Initial investment = $80000

NPV = $243342 - $ 80000

=$ 163342

ANNUAL EQUIVALENT WORTH = $163342 / 3.670

= $44200

option B is correct.

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