Company A Company B First cost, $ -50,000 -37,500 AOC, $ per year Savings best estimate, $ per year Salvage, S Life, years -7,500 -8,000 15,000 13,000 5,000 3,700 5
Company A Company B First cost, $ -50,000 -37,500 AOC, $ per year Savings best estimate, $ per year Salvage, S Life, years -7,500 -8,000 15,000 13,000 5,000 3,700 5
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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Question
Titan manufactures and sells gas-powered electricity generators. It can purchase a new line of fuel injectors from either of two companies. Cost
and savings estimates are available, but the savings estimates are unreliable at this time. Use an AW analysis at MARR = 10% per year to determine
if the selection between company A and B changes when the estimated savings varies as much as 40% from the best estimates. Use tabulated factors or a spreadsheet, as requested by your instructor.
Transcribed Image Text:Company A
Company B
First cost, $
-50,000
-37,500
AOC, $ per year
Savings best estimate,
$ per year
Salvage, S
Life, years
-7,500
-8,000
15,000
13,000
5,000
3,700
5
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VIEWCalculation of NPV for Company A:
VIEWCalculation of NPV for Company B:
VIEWCalculation of NPV for Company A if the savings best estimate decreases by 40%:
VIEWCalculation of NPV for Company B if the savings best estimate decreases by 40%:
VIEWCalculation of NPV for Company A if the savings best estimate increases by 40%:
VIEWCalculation of NPV for Company B if the savings best estimate increases by 40%:
VIEWDecision on NPV calculation:
VIEW
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