Question

# "Consider the cash flow for an investment project with MARR = 12.4%. Determine the annual equivalent...

"Consider the cash flow for an investment project with MARR = 12.4%. Determine the annual equivalent worth for the project. The answer could be negative.
The cash flow for years 0 through 4 in dollars is as follows:
-3,900
1,800
1,600
1,500
440"

Annual Equivalent Worth

 Year Annual Cash Inflow (\$) Present Value Factor at 12.40% Present Value of Annual Cash Inflow (\$) 1 1800 0.88968 1,601.42 2 1600 0.79153 1,266.45 3 1500 0.70421 1,056.31 4 440 0.62652 275.67 TOTAL 3.01194 4,199.85

Net Present Value (NPV) = Present Value of annual cash inflows – Initial Investment

= \$4,199.85 - \$3,900

= \$299.85

Annual Equivalent Worth = Net Present Value / (PVIFA 12.40%, 4 Years)

= \$299.85 / 3.01194

= \$99.55

“Thus, the Annual Equivalent Worth would be \$99.55”

NOTE

The Formula for calculating the Present Value Factor is [1/(1 + r)n], Where “r” is the Discount/Interest Rate and “n” is the number of years.