Question

If you have the annual worth of an alternative with a 5-year life, you can calculate its perpetual annual worth by:

Option a: Multiplying the annual worth by i
Option b: Dividing the annual worth by i
Option c: Multiplying the annual worth by (a/p, i, 5)
Option d: No calculation needed. The perpetual annual worth is equal to the annual worth.

Answer 1

To calculate the perpetual annual worth of an alternative with a 5-year life, you need to multiply the annual worth by the interest rate, which is denoted as i.

Step-by-step explanation:

To calculate the perpetual annual worth of an alternative with a 5-year life, you need to multiply the annual worth by the interest rate, which is denoted as i. Therefore, the correct option is Option a: Multiplying the annual worth by i. This calculation takes into account the present value of future cash flows and the interest rate to determine the equivalent annual worth.