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19 October, 03:58

A new company plans to lose money for the first 5 years of its existence. They think they will lose $4,000,000 in year 1 and the losses are expected to decrease by $150,000 per year for the next three years. At 8% MARR what is the Annual Worth of their losses

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  1. 19 October, 07:30
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    The answer is $3,789.363

    Explanation:

    Solution

    Given that:

    For the first 5 years of functioning, a new company plans to lose money.

    In the first year they think they will lose money of the amount = $4,000,000

    The expected decrease (losses) is = $150,000 (next three years)

    MARR = 8%

    Now

    We find the annual worth losses which is given below:

    Annual worth = $4,000,000 - $150,000 (A/G, 8%, 4)

    (A/G, i, N) = 1/i - N / (1 + i) ^N - 1

    = 1/0.08 - 4 / (1 + 0.08) ^4 - 1

    = 12.5 - 4/1.360488961 - 1

    =12.5 - 11.09606977

    =1.40425

    Thus,

    AW = $4,000,000 - $150,000 (1.40425)

    AW = $4,000,000 - $210637.5

    AW = $3,789. 363

    Therefore, the annual worth pf their losses is $3,789.363
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