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In: Economics

A project firm is considering for implementation has these estimated cost and reveneus: an investment cost...

A project firm is considering for implementation has these estimated cost and reveneus: an investment cost of $50,008, mantainance cost starts at $5,000 at the end of year(FOY) one and increase by $1,000 for the next four years, and then remains constant for the following five years: savings of $24,105 per year(EOY 1-10) and finally a resale value of $27,215 at EOY 10. If the project has a 10 year life and the firm's MARR is 10% per year, What is the present worth of the project?

Solutions

Expert Solution

Solution:-   

Net benefit table:

Years

Saving(X)

Maintenance cost(Y)

Net Benefit (X-Y)

1

24105

5000

19105

2

24105

6000

18105

3

24105

7000

17105

4

24105

8000

16105

5

24105

9000

15105

6

24105

9000

15105

7

24105

9000

15105

8

24105

9000

15105

9

24105

9000

15105

10

24105

9000

15105

Initial Investment = -50008

Final Year Cash Flow = 15105 + 27215

                                      = 42,320

Present worth = -50008+19105/(1+.10)^1+18105/(1+.10)^2+17105/(1+.10)^3+16105/(1+.10)^4+15105/(1+.10)^5+15105/(1+.10)^6+15105/(1+.10)^7+15105/(1+.10)^8+15105/(1+.10)^9+15105/(1+.10)^10

= -50008+17368.18+14962.81+12851.24+10999.93+9379.02+8526.38+7751.25+7046.594+6405.9945+5823.63

= -50008+101115.0285

= 51107.03

Hence, Present worth of the project is $51107.03

Rahul Sunny answered 6 months ago
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