Which process line should be built for a newchemical? The expected market for the chemi-cal is 20 years. A 9% rate is used to evaluatenew process facilities, which are compared withpresent worth. How much does the better choicesave?FirstO&MCostCost/year SalvageLifeA $18M$5M$4M10 yearsВ25M3M6M20 years

We need to compute the present worth of both the options. Option with the lowest present worth shall…

Answered: cal? The expected 20 years. A 9% rate…

cal? The expected 20 years. A 9% rate is used to e process facilities, which are compare at worth. How much does the better

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

Problem 1PS

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

Question

Which process line should be built for a new
chemical? The expected market for the chemi-
cal is 20 years. A 9% rate is used to evaluate
new process facilities, which are compared with
present worth. How much does the better choice
save?
First
O&M
Cost
Cost/year Salvage
Life
A $18M
$5M
$4M
10 years
В
25M
3M
6M
20 years

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