Your office mate performed an 8% per year Present Worth evaluation of

QUESTION

Your office mate performed an 8% per year Present Worth evaluation of two alternatives before he left on vacation. Now, your supervisor wants you to provide the results in Annual Worth terms. The PW results are:
PW(a) = $-517,510 for a life of 4 yearsPW(b) = $-812,100 for a life of 8 years
Concept: Present Value of Annuity shows the present value of all future cash flows. It can be calculated as: Present Value of Annuity = Annual Cash Flow*[1-1/(1+r)^n]/r Where r -> Annual Rate of Return n -> Number of Periods (in year) Solution: Option a: Present Worth of Investment PW (a) = $517510 Interest Rate = 8% Time Period = 4 Years According to Present value of Annuity Formula: $517510 = Annual¦

orth*[1-1/(1+8%)^4]/8% So, Annual Worth (a) = $156253.02 Option b: Present Worth of Investment PW (b) = $812100 Interest Rate = 8% Time Period = 8 Years According to Present value of Annuity Formula: $812100 = Annual Worth*[1-1/(1+8%)^8]/8% So, Annual Worth (b) = $141317.39

ANSWER:

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