Given the following alternatives and cash flows:
Alternative #1 has an investment of $25,000 and an annual income of
$6,000/year for eight years.
Alternative #2 has an investment of $35,000 and an annual income of
$12,500/year for four years
If MARR = 12% What is the the difference in present worth
AW2 - AW1 assuming repeatability?
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-$1,631 |
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$9 |
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$1,631 |
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-$1,839 |
NPV of Alternative #1
Net Present Value = Present Value of annual cash inflows – Initial Investment
= $6,000[PVIFA 12%, 8 Years] - $25,000
= [$6,000 x 4.96764] - $25,000
= $29,806 – 25,000
= $4,806
Annual Worth = Net Present Value / [PVIFA 12%, 8 Years]
= $4,806 / 4.96764
= $968
NPV of Alternative #2
Net Present Value = Present Value of annual cash inflows – Initial Investment
= $12,500[PVIFA 12%, 5 Years] - $35,000
= [$12,500 x 3.03735] - $35,000
= $37,967 - $35,000
= $2,967
Annual Worth = Net Present Value / [PVIFA 12%, 5 Years]
= $2,967 / 3.03735
= 977
The difference in present worth AW2 - AW1
The difference in present worth AW2 - AW1 = AW - Alternative #2 - AW - Alternative #1
= $977 – 968
= $9
“The difference in present worth AW2 - AW1 = $9”
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