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Cesar, a petroleum engineer, has identified two equivalent diesel-powered genera- tors to be purchased for an offshore platform. Use i = 12% per year to determine which is the more economic. Solve using both spreadsheet and calculator functions. Generator 1 Generator 2 Р. $ S, $ -80,000 - 120,000 15,000 40,000 п, years 3 3 AOC, $/year - 30,000 -8,000 A E G Year Generator 2 Lease -120,000 -8,000 -40,000 Repurchase cash flow 1 -20,000 -20,000 = S-AOC-P 4 -8,000 = 40,000 – 8,000 – 120,000 -88,000 -8,000 -8,000 32,000 -$189,568 3 -20,000 -20,000 -20,000 6 4 7 6 -40,000 -$132,361 8 – 40000 + NPV(12%,C3:C8) 9. PW value 10 11 12 – 120000 + NPV(12%,B3:B8) FIGURE 4.5 Different-life alternatives evaluated using the NPV function, Example 4.9. 2.

Cesar, a petroleum engineer, has identified two equivalent diesel-powered genera- tors to be purchased for an offshore platform. Use i = 12% per year to determine which is the more economic. Solve using both spreadsheet and calculator functions. Generator 1 Generator 2 Р. $ S, $ -80,000 - 120,000 15,000 40,000 п, years 3 3 AOC, $/year - 30,000 -8,000 A E G Year Generator 2 Lease -120,000 -8,000 -40,000 Repurchase cash flow 1 -20,000 -20,000 = S-AOC-P 4 -8,000 = 40,000 – 8,000 – 120,000 -88,000 -8,000 -8,000 32,000 -$189,568 3 -20,000 -20,000 -20,000 6 4 7 6 -40,000 -$132,361 8 – 40000 + NPV(12%,C3:C8) 9. PW value 10 11 12 – 120000 + NPV(12%,B3:B8) FIGURE 4.5 Different-life alternatives evaluated using the NPV function, Example 4.9. 2.

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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Continuing with the example 4.8, once Cesar had selected generator 2 to purchase, he approached the manufacturer with the concerns that the first cost was too high and the expected life was too short. He was offered a lease arrangement for 6 years with a $20,000 annual cost and an extra $20,000 payment in the first and last years to cover installation and removal costs. Determine if generator 2 or the lease arrangement is better at 12% per year.

Cesar, a petroleum engineer, has identified two equivalent diesel-powered genera- tors to be purchased for an offshore platform. Use i = 12% per year to determine which is the more economic. Solve using both spreadsheet and calculator functions. Generator 1 Generator 2 Р. $ S, $ -80,000 - 120,000 15,000 40,000 п, years 3 3 AOC, $/year - 30,000 -8,000
Transcribed Image Text:Cesar, a petroleum engineer, has identified two equivalent diesel-powered genera- tors to be purchased for an offshore platform. Use i = 12% per year to determine which is the more economic. Solve using both spreadsheet and calculator functions. Generator 1 Generator 2 Р. $ S, $ -80,000 - 120,000 15,000 40,000 п, years 3 3 AOC, $/year - 30,000 -8,000
A E G Year Generator 2 Lease -120,000 -8,000 -40,000 Repurchase cash flow 1 -20,000 -20,000 = S-AOC-P 4 -8,000 = 40,000 – 8,000 – 120,000 -88,000 -8,000 -8,000 32,000 -$189,568 3 -20,000 -20,000 -20,000 6 4 7 6 -40,000 -$132,361 8 – 40000 + NPV(12%,C3:C8) 9. PW value 10 11 12 – 120000 + NPV(12%,B3:B8) FIGURE 4.5 Different-life alternatives evaluated using the NPV function, Example 4.9. 2.
Transcribed Image Text:A E G Year Generator 2 Lease -120,000 -8,000 -40,000 Repurchase cash flow 1 -20,000 -20,000 = S-AOC-P 4 -8,000 = 40,000 – 8,000 – 120,000 -88,000 -8,000 -8,000 32,000 -$189,568 3 -20,000 -20,000 -20,000 6 4 7 6 -40,000 -$132,361 8 – 40000 + NPV(12%,C3:C8) 9. PW value 10 11 12 – 120000 + NPV(12%,B3:B8) FIGURE 4.5 Different-life alternatives evaluated using the NPV function, Example 4.9. 2.
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