Question

"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"

Answer 1

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.