Question

In: Economics

What is the equivalent annual worth of a 20-year project that has a $2 million initial...

What is the equivalent annual worth of a 20-year project that has a $2 million initial cost, annual operating costs of $54,652 and annual benefits of $274,189? Assume a discount rate of 9.0%.

Enter your answer in the box below in units of $.

Solutions

Expert Solution

Annual worth = 444.10 $

where, present value of cash flows = Amount / (1 + interest rate) ^t

Annual worth =

Where,

P = Present value

I = interest rate = 9 %

N = no of years = 20 years

So, P = 4054 $

solving for i(1 + i)n

= 0.09(1 + 0.09)20

= 0.50439696910004627436958789718625

solving for (1 + i)n – 1

= (1 + 0.09)20 – 1

= 4.6044107677782919374398655242917

now, 4054 ( 0.50439696910004627436958789718625 / 4.6044107677782919374398655242917)

Annual worth = 444.10 $

Rahul Sunny answered 2 years ago
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