The cash flows given in table below are for two different alternatives. MARR =10

ID: 1102020 • Letter: T

Question

The cash flows given in table below are for two different alternatives. MARR =10%

Data

Initial Cost

$20,000

$80,000

Uniform Annual Benefits

$6,000

$10,000

Salvage Value

$5,000

$20,000

Useful Life in years

infinity

The equivalent uniform annual worth (EUAW) of alternative N is ______________.

Hint: Assume the Salvage Value is never realized since N is infinite.

Data

Initial Cost

$20,000

$80,000

Uniform Annual Benefits

$6,000

$10,000

Salvage Value

$5,000

$20,000

Useful Life in years

infinity

Hi,

Please find the detailed answer as follows:

It is a case of Perpetuity (since annual cash inflows continue to occur for an indefinite period of time)

Present Value of Cash Flows (Associated with N) = Uniform Annual Benefits/MARR = 10000/10% = 100000

Net Present Value = Present Value of Cash Flows (Associated with N) - Initial Cost of N = 100000 - 80000 = 20000

Annual Worth = Net Present Value*MARR = 20000*10% = $2000

Answer is $2000

Thanks.

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