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Seven years ago a New Brunswick logging company purchased a used wood chipper for $131,000 for biomass and custom chipping. Operating and maintenance costs averaged $4,000 per year. A complete overhaul at the end of year 4 cost additional $9,000. Annual revenue from using the chipper was $20,000 per year. Calculate the annual worth of the chipper at 7% interest rate

(Note: Round your answer to 2 decimal places and do not use the $ sign in your answer)

Answer 1

Here, Net annual Revenue (A) = 20,000 - 4,000 = 16,000

i = 7%

n = 7

Present worth = -131,000 + 16,000(P/A, 7%, 7) - 9,000(P/F, 7%, 4)

                       = -131,000 + 16,000(5.389) - 9,000(0.7629)

                       = -131,000 + 86,224 - 6866.1

                       = -51,642.1

Annual Worth = PW(A/P, i, n)

                       = -51,642.1(A/P, 7%, 7)

                       = -51,642.1(0.1856)

                       = -9,584.77