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Calculating Future, Present and Annual Worth

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Use the following cash flow for the problem:
i) In year 0 you paid $50000 for a machine
ii) In years 1 through 5 you made $10000 per year from the machine
iii) In year 3 you had to pay an additional $10000 to keep the machine going
iv) In year 5 you sold the machine for $20000

a. Draw the cash flow diagram for this problem.
b. Calculate the Present Worth (PW) at 10% interest.
c. Calculate the Future Worth (FW) at 10% interest.
e. Calculate the Annual Worth (AW) at 10% interest.
f. What is the payback period?
g. Does the payback period and the PW, FW, and AW make sense?
h. Is this a viable project?

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Solution Summary

The following solution depicts the steps to estimate PW, FW and Annual Worth in the given case.

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Please refer to attached file for the solution.

a. Draw the cash flow diagram for this problem.

(see attached file for chart)

b. Calculate the Present Worth (PW) at 10% interest.

Year,n Cash inflow (CI) Cash Outflow (Co) Net Cash Flow (Cn) PV=Cn/(1+10%)^n
0 -50000 -50000 -50000.00
1 10000 10000 9090.91
2 10000 10000 8264.46
3 10000 -10000 0 0.00
4 10000 10000 6830.13
5 30000 30000 18627.64
PW -7186.85

c. Calculate the Future Worth (FW) at 10% interest.

Year,n Cash inflow ...

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  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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