Final answer:
To determine the capitalized worth of the new windmill, calculate the net present value (NPV) using the cash inflows and outflows over the expected life of the windmill. Calculate the annual net cash flows by subtracting the annual operating and maintenance costs from the salvage value. Use the NPV formula to calculate the NPV for each year and then sum up all the discounted cash flows to get the capitalized worth.
Step-by-step explanation:
The capitalized worth, or present worth, of the new windmill can be determined by using the net present value (NPV) method. To calculate the NPV, we need to identify the cash inflows and outflows over the expected life of the windmill. The purchase price and installation cost are cash outflows, while the annual operating and maintenance costs are cash inflows. The salvage value is considered a cash inflow at the end of the life of the windmill.
Step 1: Calculate the annual net cash flows. Subtract the annual operating and maintenance costs from the salvage value. In this case, the annual net cash flow is ($12,000 - $32,000) = -$20,000.
Step 2: Calculate the NPV using the formula: NPV = Cash Flow / (1+MARR)^N, where MARR is the minimum acceptable rate of return and N is the number of years.
Step 3: Sum up all the discounted cash flows to get the capitalized worth. In this case, you would sum up the NPVs for all 40 years.