Calculate the annual worth.
Explanation of Solution
Time period is indicated by (n). Interest rate is indicated by ‘i’.
The annual worth (AW) of interest rate 7% can be calculated as follows:
Therefore, the annual worth is -$5,678,907, which is less than the -$6,100,000. Thus, it is acceptable.
The annual worth (AW) of interest rate 10% can be calculated as follows:
Therefore, the annual worth is -$5,888,836, which is less than the -$6,100,000. Thus, it is acceptable.
The annual worth (AW) of interest rate 15% can be calculated as follows:
Therefore, the annual worth is -$6,309,040, which is greater than the -$6,100,000. Thus, it is not acceptable. Since the annual worth exceeds $6,100,000 at interest rate 15%, the decision is sensitive.
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Chapter 18 Solutions
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