Question

Please include a Cash Flow Diagram

Income from a precious metals mining operation has been decreasing uniform for 5 years. If income in the year 1 was $1,300,000 and it decreased by $30,000 per year through the year 4, calculate the equivalent annual worth of the income at 6% per year.

Answer 1

Time Period (yr)	Income	PV factor at 6%	Present Worth
1	$1,300,000	0.943396	$1226415.09
2	$1,270,000	0.889996	$1130295.48
3	$1,240,000	0.839619	$1041127.91
4	$1,210,000	0.792094	$958433.33
5	$1,180,000	0.747258	$881764.64
Present worth			$5238036.46

Net present value NPV at discount rate of 6%= 45238036.46

Equivalent annual worth = (r*NPV) / (1-(1+r)-ⁿ)

                                        = (0.06*5238036.460 / (1-(1+0.08)-⁵)

                                        = $1,243,491.001