- 2076 Shrawan · 6 marks
Evaluate project using AW at 12%
Short answer
The annual worth is found by converting the cash flows to an equivalent uniform amount at 12%. AW = +Rs 248.04 per year, which is greater than zero, so the project is acceptable.
Evaluate the project by using AW formulation of the project at i = 12%.
| EOY | 0 | 1 | 2 | 3 | 4 | 5 |
|---|---|---|---|---|---|---|
| Cash flow | -3000 | 800 | 1000 | 1100 | 1210 | 1464 |
AW is the equivalent uniform annual amount of all cash flows: AW = PW × (A/P, i, N). If AW > 0, the project earns more than the MARR (12%) and is accepted.
EOY : 0 1 2 3 4 5
CF : -3000 800 1000 1100 1210 1464
Step 1: PW at 12%
| EOY | CF | (P/F, 12%, t) | PW |
|---|---|---|---|
| 0 | -3,000 | 1.0000 | -3,000.00 |
| 1 | 800 | 0.8929 | 714.29 |
| 2 | 1,000 | 0.7972 | 797.19 |
| 3 | 1,100 | 0.7118 | 782.96 |
| 4 | 1,210 | 0.6355 | 768.98 |
| 5 | 1,464 | 0.5674 | 830.71 |
| Sum | 894.13 |
Step 2: AW
- (A/P, 12%, 5) = 0.12 / [1 − (1.12)^-5] = 0.27741
- AW = 894.13 × 0.27741 = Rs 248.04 per year
Answer: AW(12%) = +Rs 248.04 per year > 0, so the project is acceptable.
✓ Answer checked by Claude Opus 5.5 (high effort)
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