Problem: A manufacturing company buys a new piece of equipment for $42,000 which is expected to last 8 years and will have a salvage value of $8,000. The new equipment will allow the company to generate new revenues of $12,000 at the end of each year. The company uses an interest rate of 8%.
What is the Equivalent Annual Worth (EAW) for the project? Solve using two methods.
a. Using Engineering Economy Factors found in Appendix C. or Excel PMT function. Convert all values to annual values (that are not already annual). Add the annual values together to get EAW.
b. Use Excel spreadsheet to first calculate Present Worth by setting up a cash flow table and using NPV function. Then use PMT function to convert to an Equivalent Annual Worth