Question

Consider the accompanying cash flow diagram represented below. Compute the equivalent annual worth at i= 13% o $20.000 o Year

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Answer #1

Solution:-

First we compute Present worth of the cash flows as computed below.

Year

Cash flow ($)

PV Factor at 13%

Discounted cash flow ($)

(A)

(B)

( A * B)

0

$20,000

1

$20,000

1

-$5,000

0.8850

-$4336.5

2

-$5,000

0.7831

-$3915.5

3

-$8,000

0.6931

-$5544.8

4

-$11,000

0.6133

-$6746.3

5

-$14,000

0.5428

-$7599.2

6

-$17,000

0.4803

-$8165.1

Present worth ($) =

-9467.4

Equivalent annual worth = Present worth / PVIFA (13%, 6) = - $9,467.4 / 3.998 = - $2368.03

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