Chaucer & Associates is a small company with a reputation for excellence. It chooses projects with care. The CEO is evaluating proposals for the company's next project.
The Alpha Project will have startup costs of $54241. It will have annual expenses of $28036 and annual profit of $1416804. It will require 5 employees. The project will last for 4 years. If the project remains on schedule (which Chaucer plans to do), the company will receive a bonus payment of $41127 at the end of year 3.
The Widget Project is a very different type of project and it will not have any startup costs associated with it. It will have annual expenses of $17084 and annual profit of $1919833. It will require 4 employees. The contract for the project is for 7 years.
Assume an interest rate of 9%, compounded annually. Use an average annual employee salary of $81450 (per employee) to calculate total annual employee costs. Comparing the two projects, what is the equivalent uniform annual worth (EUAW) of the Widget Project?
Notes:
For the sake of comparison, assume a project would be replaced with an identical project when it ended.