Question
In: Accounting
A company is replacing its old tools, they expect to save $10,000 the first year and...
A
company is replacing its old tools, they expect to save $10,000 the
first year and amounts increasing by $1000 each year after for 5
years. If the interest is 12% per year what is the equivalent
annual worth (EUAW) of the savings?
Solutions
Expert Solution
| a) | |||||
| Year | Cash flow | Discount factor | Present value | ||
| a | b | c=1.12^-a | b*c | ||
| 1 | $ 10,000 | 0.8929 | $ 8,928.57 | ||
| 2 | $ 11,000 | 0.7972 | $ 8,769.13 | ||
| 3 | $ 12,000 | 0.7118 | $ 8,541.36 | ||
| 4 | $ 13,000 | 0.6355 | $ 8,261.74 | ||
| 5 | $ 14,000 | 0.5674 | $ 7,943.98 | ||
| 6 | $ 15,000 | 0.5066 | $ 7,599.47 | ||
| Total | 4.1114 | $ 50,044.24 | |||
| b) | |||||
| EUAW | = | $ 50,044.24 | / | 4.1114 | |
| = | $ 12,172.05 | ||||
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