Question

1. Project A costs X amount of money to begin and Y amount of money to operate every year starting from end of Year 5 and will last forever; also Z of salvage value at Year 100. Project B cost Pamont of money to begin and Q amount of money to operate every year starting from end of Year 1 to end of Year 5 and 5 of salvage value at end of Year 5. Use an annual rate of R to conduct a Present Worth Analysis to determine the PW of both A and B. X = -1,250 Y = -80 Z= 1,000,000 P = -250 Q = -120 SE 50 R = 12.00% PWA = 1 1 PWB = 1 2. Project C costs Xto begin and costs Y every year to operate with a salvage value of Z at the end of Year 5. Project D costs P to begin and costs Qevery year to operate with a salvage value A llea an annual rate of R to conduct an Annual Worth

Answer 1

Answer:-

Project A
Rate of interest = discount rate = 12%

Initial investment at year 0 = X = 1250
Operating cash outflow from year 5 till 100th year = Y = 80
Salvage value at the end of 100th year = Z = 1000000
PW A = -1250 - 80 / ( 1+0.12)⁵ - 80 / (1+0.12)⁶ --------- - 80 / (1 +0.12)¹⁰⁰ + 1000000 / (1+0.12)¹⁰⁰
PW A = -1662.98

Project B

Initial investment at year 0= 250
Operating cash outflow from end of year 1 to end of year 5 = 120
Salvage value at end of year 5 = 50
PW B = -250 - 120 / (1+0.12) - 120 / (1+0.12)² - 120 / (1+0.12)³ - 120 / (1+0.12)⁴ - 120 / (1+0.12)⁵ + 50 / (1+0.12)⁵
PW B = -250 - 107.14 - 95.66 - 85.41 - 76.26 - 68.09 + 28.38
PW B = - 682.56 + 28.38
PW B = -654.18