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al dollars. Equipment B (actual $) Equipment A (year-zero $) $0,700 $4,000 $0 Initial investment $11,400 $4,000 $0 Net annual revenue Market value at end of useful life Useful life, years 12 12 or uses a market interest rate of 8% per year. If inflation rate is expected to average 1.89% per year over the next several years, d of Equipment A is 889 3,700 3,835

al dollars. Equipment B (actual $) Equipment A (year-zero $) $0,700 $4,000 $0 Initial investment $11,400 $4,000 $0 Net annual revenue Market value at end of useful life Useful life, years 12 12 or uses a market interest rate of 8% per year. If inflation rate is expected to average 1.89% per year over the next several years, d of Equipment A is 889 3,700 3,835

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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A factory manager is considering the purchase of one of the following two production equipment. Cash flow estimates for equipment A are in year-zero dollars while those of equipment B are in actual dollars. Equipment B (actual $) Equipment A (year-zero $) $9,700 $4,000 $11,400 $4,800 Initial investment Net annual revenue Market value at end of useful life Useful life, years 12 12 The manager uses a market interest rate of 8% per year. If inflation rate is expected to average 1.89% per yoar over the next several years, determine the PW of each equipment. 1. The PW of Equipment A is O A. $32,889 OB. $13,700 OC. $23,835 D. $20,444 2. The PW of Equipment B is O A. $16,300 O B. $40,771 OC. $25,527 OD. $29,681
Transcribed Image Text:A factory manager is considering the purchase of one of the following two production equipment. Cash flow estimates for equipment A are in year-zero dollars while those of equipment B are in actual dollars. Equipment B (actual $) Equipment A (year-zero $) $9,700 $4,000 $11,400 $4,800 Initial investment Net annual revenue Market value at end of useful life Useful life, years 12 12 The manager uses a market interest rate of 8% per year. If inflation rate is expected to average 1.89% per yoar over the next several years, determine the PW of each equipment. 1. The PW of Equipment A is O A. $32,889 OB. $13,700 OC. $23,835 D. $20,444 2. The PW of Equipment B is O A. $16,300 O B. $40,771 OC. $25,527 OD. $29,681
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