I just need to understand why it is 195 instead of 856. ### Understanding Equivalent Uniform Annual WorthTo accurately determine the equivalent uniform annual worth for a series of cash flows, you need to consider several key financial details. Here's how you can approach the calculation based on the given information:**Parameters Provided:**- **Annual Interest Rate:** 3%- **Period:** 15 years- **Initial Investment (Cost):** $1,016- **Annual Revenue:** $861- **Annual Costs (Gradient):** $90**Step-by-Step Calculation:**1. **Initial Investment Discounting:** - Determine the present worth of the initial investment and then convert it into an annual equivalent using the provided interest rate over the 15-year period.2. **Annual Revenue:** - Calculate this constant revenue stream over the period and find its equivalent annual worth, factoring in the interest rate.3. **Gradient Costs:** - Since costs grow annually (gradient), convert these escalating costs over the duration into an annual equivalent.**Final Calculation:**- Using the given parameters, calculate the equivalent uniform annual worth.- The result, rounded to the nearest dollar, yields **$856**.**Margin of Error:**- The calculation includes a margin of error of ± 5%, which indicates the potential variability in the computed annual worth due to assumptions or errors in the input values.By understanding these components, you can effectively evaluate the financial viability of an investment through the equivalent uniform annual worth calculation.

When evaluating alternatives, the annual worth (AW) approach is often employed. • All cash flows are…

Calculate the equivalent uniform annual worth for the following set of cash flows. Round your answer to the nearest dollar. Annual Interest Rate: 3% Period: 15 years Initial Investment (Cost): $1,016 Annual Revenue: $861 Annual Costs (Gradient): $90

Calculate the equivalent uniform annual worth for the following set of cash flows. Round your answer to the nearest dollar. Annual Interest Rate: 3% Period: 15 years Initial Investment (Cost): $1,016 Annual Revenue: $861 Annual Costs (Gradient): $90

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

I just need to understand why it is 195 instead of 856.

### Understanding Equivalent Uniform Annual Worth

To accurately determine the equivalent uniform annual worth for a series of cash flows, you need to consider several key financial details. Here's how you can approach the calculation based on the given information:

**Parameters Provided:**

- **Annual Interest Rate:** 3%
- **Period:** 15 years
- **Initial Investment (Cost):** $1,016
- **Annual Revenue:** $861
- **Annual Costs (Gradient):** $90

**Step-by-Step Calculation:**

1. **Initial Investment Discounting:**
- Determine the present worth of the initial investment and then convert it into an annual equivalent using the provided interest rate over the 15-year period.

2. **Annual Revenue:**
- Calculate this constant revenue stream over the period and find its equivalent annual worth, factoring in the interest rate.

3. **Gradient Costs:**
- Since costs grow annually (gradient), convert these escalating costs over the duration into an annual equivalent.

**Final Calculation:**

- Using the given parameters, calculate the equivalent uniform annual worth.
- The result, rounded to the nearest dollar, yields **$856**.

**Margin of Error:**
- The calculation includes a margin of error of ± 5%, which indicates the potential variability in the computed annual worth due to assumptions or errors in the input values.

By understanding these components, you can effectively evaluate the financial viability of an investment through the equivalent uniform annual worth calculation.

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