Question

A project has an initial cost of $100,000 and uniform annual benefits of $12,500. At the end of its 8-year useful life, its salvage value is $30,000. At a 10% interest rate, the net present worth of the project is approximately:__________
1- $-19,318
2- $0
3- $+30,000
4- $+100,000

Answer 1

Answer:

$X=-\ 19318$

Explanation:

From the question we are told that:

Initial cost $P= 100,000$

Annual benefits $A= 12,500$

Salvage value $S= 30,000$

Interest rate $I=10\%=>0.10$

Time $t=8years$

Generally the equation for Net Project worth X is mathematically given by

  $X=-P+A+S$

Where

Present worth of Annual benefits A is

 $A'=A(P/a,0.10,8)$

 $A'=12500*5.3349$

 $A'=\ 66686.25$

Present worth of Salvage Price S is

 $S'=S(P/a,0.10,8)$

 $S'=30000*0.46651$

 $S'=\ 13995.3$

Therefore

 $X=-P+A'+S'$

 $X=-100000+66686.25+\ 13995.3$

 $X=-\ 19318$