The proposal is for a plant costing $250,000. The plant has an expected useful life of...

The proposal is for a plant costing $250,000. The plant has an expected useful life of 25 years and a set salvage value of $45,000. Annual receipts of $41,000 are expected, annual maintenance taxes, and administrative cost will be $11,000/year. What is the present worth if MARR is 10%?

A. $28,345

B. $15,515

C. $32,705

D. $26,465

PLEASE SOLVE IN EXCEL WITH EXCEL EQUATIONS

Expert Solution

D. $26,465

Working:

Present value of annual operating net cash inflows				$ 2,72,311
Present value of salvage				$ 4,153

Total Present value of cash inflows				$ 2,76,465

Less cost of project				$ 2,50,000

Present worth of project				$ 26,465

Working;

Net Annual operating cash inflow	=	Annual cash inflows - Annual cash outflow
	=	$ 41,000	-	$ 11,000
	=	$ 30,000

Present value of annuity of 1 for 25 years	=	(1-(1+i)^-n)/i		Where,
	=	(1-(1+0.10)^-25)/0.10		i	10%
	=	9.077040018		n	25

Present value of 1 received at the end of year 25	=	(1+i)^-n
	=	(1+0.10)^-25
	=	0.092295998

Present value of annual cash inflows	=	Annual Cash inflows * Present value of annuity of 1 for 25 years
	=	$ 30,000	*	9.077040018
	=	$ 2,72,311.20

Present value of salvage value	=	Salvage Value * Present value of 1
	=	$ 45,000.00	*	0.092295998
	=	$ 4,153.32

ekkarill92 answered 1 year ago

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