Consider the following cash flows and assume i = 10% for all analyses purposes: 12 0 1 2 3 4 5 6 7 8 A -$2,500 $650 $650 $650 $600 $600 $600 $300 $300 Project Cash Flows B -$7,000 -$2,500 -$2,000 -$1,500 -$1,500 -$1,500 -$1,500 C -$5,000 -$2,000 -$2,000 -$2,000 -$2,000 -$2,000 -$2,000 -$2,000 D -$5,000 -$500 -$500 $4,000 $3,000 $3,000 $2,000 $3,000 a) Compute the project balances for Projects A and D, as a function of project year b) Compute the future worth values for Projects A and D at the end of service life. c) Suppose that Projects B and C are mutually exclusive. Assume also that the required service period is eight years and that the company is considering leasing comparable equipment that has an annual lease expense of $3,000 for the remaining years of the required service period for both projects. Which project is the better choice?
Consider the following cash flows and assume i = 10% for all analyses purposes: 12 0 1 2 3 4 5 6 7 8 A -$2,500 $650 $650 $650 $600 $600 $600 $300 $300 Project Cash Flows B -$7,000 -$2,500 -$2,000 -$1,500 -$1,500 -$1,500 -$1,500 C -$5,000 -$2,000 -$2,000 -$2,000 -$2,000 -$2,000 -$2,000 -$2,000 D -$5,000 -$500 -$500 $4,000 $3,000 $3,000 $2,000 $3,000 a) Compute the project balances for Projects A and D, as a function of project year b) Compute the future worth values for Projects A and D at the end of service life. c) Suppose that Projects B and C are mutually exclusive. Assume also that the required service period is eight years and that the company is considering leasing comparable equipment that has an annual lease expense of $3,000 for the remaining years of the required service period for both projects. Which project is the better choice?
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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Transcribed Image Text:Problem 1:
Consider the following cash flows and assume i = 10% for all analyses purposes:
Project Cash Flows
A
D
-$2,500
-$7,000
-$5,000
-$5,000
1
$650
-$2,500
-$2,000
-$500
2
$650
-$2,000
-$2,000
-$500
$650
-$1,500
-$2,000
$4,000
4
$600
-$1,500
-$2,000
$3,000
5
$600
-$1,500
-$2,000
$3,000
$600
-$1,500
-$2,000
$2,000
7
$300
-$2,000
$3,000
8
$300
a) Compute the project balances for Projects A and D, as a function of project year
b) Compute the future worth values for Projects A and D at the end of service life.
c) Suppose that Projects B and C are mutually exclusive. Assume also that the required
service period is eight years and that the company is considering leasing comparable
equipment that has an annual lease expense of $3,000 for the remaining years of the
required service period for both projects. Which project is the better choice?
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