A process upgrade costs USD 120,000 now and returns USD 35,000 at each year-end for 5 years. At 8%, net present worth is most nearly:
- (A)-120000 USD
- (B)1980 USD
- (C)15796 USD
- (D)19745 USD
Show worked solution
Answer: (D)
Present worth of returns is USD 139,745; minus initial cost gives NPW about USD 19,745.
Uniform annual returns use the present-worth annuity factor.
The factor is 3.9927.
FE Reference Handbook — Economics: Net Present Worth
Why the other choices appear
- (A)Reporting initial cost alone omits annual returns.
- (B)Using an overly rounded annuity factor nearly eliminates the positive worth.
- (C)Applying an unsupported 20% final scaling understates the result obtained from the governing relation.