Question & Answer: For the cash flows presented in the following diagram, what is the uniform annual equivalent…..

3. For the cash flows presented in the following diagram, what is the uniform annual equivalent worth? The project has an interest rate of 8% per year $15,000 $10,000 $5,000 $5,000 $5,000 $5,000 $5,000 4 10 $7,500 $25,000

For the cash flows presented in the following diagram, what is the uniform annual equivalent worth? The project has an interest rate of 8% per year.

Expert Answer

Answer

Present value of cash flows = 5000/1.08 + 5000/1.08^2 + 5000/1.08^3 + 5000/1.08^4 + 5000/1.08^5 + 15000/1.08^8 + 10000/1.08^10 – (25000 + 7500/1.08^7)

Present value of cash flows = $3323.34

Let, equivalent annual worth = EAW

Then,

3323.34 = EAW*(1-1/1.08^10)/.08 = EAW*6.71

EAW = 3323.34/6.71

EAW = $495.28

Hence, the uniform equivalent annual worth is $495.28.

Still stressed from student homework?

Get quality assistance from academic writers!

Order now