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

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