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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