Which of the four projects listed blow would you choose if you only want to invest in one project if the criteria is a) Present Worth, b) Future Worth or c) Annual Worth? All projects are for five years and the risk-free interest rate is 10%.
Invest $14,000 today and receive $25,000 in five years.
Invest $10,000 today, receive annual payments of $3,000.
Invest $15,000 today, receive annual payments of $4,000, and also receive a final payment of $2,000.
Invest $9,000 today, receive annual payments of $1,000, $2,000, $3,000, $4,000 and $5,000
Calculating Future, Present and Annual Worth
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?