Question

A project has an initial cost of $100,000 and uniform annual benefits of $12,500. At the end of its 8-year useful life, its salvage value is $30,000. At a 10% interest rate, the net present worth of the project is approximately:__________

1- $-19,318
2- $0
3- $+30,000
4- $+100,000

Answer 1

`X=-\$19318`

Step-by-step explanation:

From the question we are told that:

Initial cost
`P= $100,000`

Annual benefits
`A= $12,500`

Salvage value
`S= $30,000`

Interest rate
`I=10\%=>0.10`

Time
`t=8years`

Generally the equation for Net Project worth X is mathematically given by

`X=-P+A+S`

Where

Present worth of Annual benefits A is

`A'=A(P/a,0.10,8)`

`A'=12500*5.3349`

`A'=\$66686.25`

Present worth of Salvage Price S is

`S'=S(P/a,0.10,8)`

`S'=30000*0.46651`

`S'=\$13995.3`

Therefore

`X=-P+A'+S'`

`X=-100000+66686.25+\$13995.3`

`X=-\$19318`