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A project is being considered that has the first cost of $12,500, creates $5,000 in annual...

A project is being considered that has the first cost of $12,500, creates $5,000 in annual cost savings, requires $3,000 in annual operating costs and has a salvage value of $2,000 after a project life of 3 years with 10% annual interest. Calculate the projects Annual equivalent worth. Please show all work.

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Answer #1
Annual worth of project ($ 2430)
Annual cost savings 5000
Less: Annual operating cost 3000
Net annual savings 2000
Annuity factor at 10% for 3 years 2.4869
Present value of inflows 4973.8
Add: Present value fo salvage 1502
($ 2000* PVf of yr-3 i.e. 0.751)
Total Present value of inflows 6475.8
Less: Initial investment -12500
Net present worth -6042
Annuity factor for 3 yrs at 10% 2.4869
Annual Equivalent worth -2429.53
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