Question

The capital fund for the new investment at Systems Corporation is limited to $75,000 for next year. You have been asked to recommend one or more of three projects as economically acceptable for investment at the corporate MARR of 10% per year. What is the PW value of the project that should be selected?

Project	Initial Investment,$	Annual NCF,$ per year	Life in years	Salvage Value$
A	-25000	6000	4	4000
B	-30000	9000	4	-1000
C	-50000	15000	4	20000

Answer 1

ANSWER:

A) Present worth of project a = initial investment + annual cash flow(P/A,I,N) + salvage value(P/F,I,N)

where i = 10% and n = 4 years

pw of project a = -25,000 + 6,000(P/A,10%,4) + 4000(P/F,10%,4)

pw of project a = -25,000 + 6,000 * 3.17 + 4,000 * .683

pw of project a = -25,000 + 19,020 + 2732 = -25,000 + 21,752 = -3,248

B) Present worth of project b = initial investment + annual cash flow(P/A,I,N) + salvage value(P/F,I,N)

where i = 10% and n = 4 years

pw of project b = -30,000 + 9,000(P/A,10%,4) - 1000(P/F,10%,4)

pw of project b = -30,000 + 9,000 * 3.17 - 1,000 * .683

pw of project b = -30,000 + 28,530 -683 = -30,683 + 28,530 = -2,153

C) Present worth of project a = initial investment + annual cash flow(P/A,I,N) + salvage value(P/F,I,N)

where i = 10% and n = 4 years

pw of project c = -50,000 + 15,000(P/A,10%,4) + 20,000(P/F,10%,4)

pw of project c = -50,000 + 15,000 * 3.17 + 20,000 * .683

pw of project c = -50,000 + 47,550 + 13,660 = -50,000 + 61,210 = 11,210

The pw of the project that should be selected is $11,210 and the project that should be selected is project c.