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A proposed project will cost $1,400 five (5) years from today. Beginning at the end of...

A proposed project will cost $1,400 five (5) years from today. Beginning at the end of year six, $500 in annual benefits will be received, continuing until the end of year nine. What is the project’s present (year 0) worth at MARR = 10%?

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Answer #1

Cost at the end of 5 years = $1400

MARR = 10%. We will use MARR to discount the Cash values for calculating their present values.

Project's present worth is the difference between the present value of Cash outflows and inflows.

So, we will discount all the cash flows to calculate their present values.

Present Value of Cash Outflow = Cost at the end of 5 years / (1+10%)5 = 1400 / (1.10)5 = 869.29

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Annual benefits: $500 at the end of Year 6, 7, 8, 9 from now.

Present Value of Cash Inflows = 500 / (1+10%)6 + 500 / (1+10%)7 + 500 / (1+10%)8 +500 / (1+10%)9 = 282.24 + 256.58 + 233.25 + 212.05 = 984.12

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Project's Present Worth at MARR = 10% is Present Value of Cash Inflows minus Present Value of Cash Outflow

= $984.12 - $869.29 = $114.83

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