Question

XTR company is considering investing in Project Zeta or Project Omega. Project Zeta generates the following cash flows: year "zero" = 362 dollars (outflow); year 1 = 138 dollars (inflow); year 2 = 312 dollars (inflow); year 3 = 354 dollars (inflow); year 4 = 172 dollars (inflow). Project Omega generates the following cash flows: year "zero" = 230 dollars (outflow); year 1 = 120 dollars (inflow); year 2 = 100 dollars (inflow); year 3 = 200 dollars (inflow); year 4 = 120 dollars (inflow). The MARR is 10 %. Using the Annual Worth Method, calculate the annual worth of the BEST project. (note: round your answer to the nearest cent, and do not include spaces, currency signs, plus or minus signs, or commas)

Answer 1

To calculate the annual worth of the projects using the Annual Worth Method, calculate the present worth of each project's cash flows, and select the project with the higher value. In this case, Project Zeta is the best project.

Step-by-step explanation:

To calculate the annual worth of the projects using the Annual Worth Method, we need to calculate the present worth of each project's cash flows and then compare them.

For Project Zeta:

• Year 0: $(362)
• Year 1: $138
• Year 2: $312
• Year 3: $354
• Year 4: $172

For Project Omega:

• Year 0: $(230)
• Year 1: $120
• Year 2: $100
• Year 3: $200
• Year 4: $120

Next, we calculate the present worth of each cash flow using the MARR of 10%:

• For Project Zeta, the present worth is $(362) + $138/(1+0.10) + $312/(1+0.10)^2 + $354/(1+0.10)^3 + $172/(1+0.10)^4 = $667.27
• For Project Omega, the present worth is $(230) + $120/(1+0.10) + $100/(1+0.10)^2 + $200/(1+0.10)^3 + $120/(1+0.10)^4 = $601.58

Finally, we compare the present worth of both projects and select the one with the higher value. In this case, Project Zeta has a higher present worth of $667.27, so it is the best project.