Nancy has a project with a $17000 first cost that returns $7000 per year over its 13-year life

Economics May 27, 2021

Nancy has a project with a $17000 first cost that returns $7000 per year over its 13-year life. There will be a $3000 salvage value at the end of the 13-years. If Nancy uses a MARR of 14%, what is the annual worth of the project?

Expert Solution

Computation of Annual Worth of the Project:

Annual Worth = -P(A/P, i, n) + A + F(A/F, i, n)

= -17,000(A/P, 14%, 13) + 7000 + 3,000(A/F, 14%, 13)

= -17,000(0.171164) + 7,000 + 3,000(0.03116)

= -2909.78 + 7000 + 93.49

Annual Worth = $4,183.71

Workings:

(A/P, 14%, 13) = [(i*(1+i)^n)/((1+i)^n - 1)] = [(14%*(1+14%)^13)/((1+14%)^13 - 1)] = 0.171164

(A/F, 14%, 13) = i/(1+i)^n - 1 = 14% / (1+14%)^13 - 1 = 0.03116

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