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Consider two mutually exclusive alternative. Construction a choice table using PW for interest rate from 0% to 20%. If the minimum attractive rate of return is 8%, which alternative should be selected?   Alternative A B Fist cost $2,000 $3,000 Uniform annual benefit $450 $600 Salvage Value $200 700 Useful life 6 years 6 years   Hint:    Equation:        PW_A = 450(P/A, i, 6) + 200(P/F, i, 6) – 2000 PW_B = 600(P/A, i, 6) + 700(P/F, i, 6) – 3000 or Spreadsheet: PW_A = -PV(i, nper, pmt, fv) – 2000 = -PV(i, 6, 450, 200) - 2000 PW_B = -PV(i, nper, pmt, fv) – 3000 = -PV(i, 6, 600, 700) - 3000

Consider two mutually exclusive alternative. Construction a choice table using PW for interest rate from 0% to 20%. If the minimum attractive rate of return is 8%, which alternative should be selected?   Alternative A B Fist cost $2,000 $3,000 Uniform annual benefit $450 $600 Salvage Value $200 700 Useful life 6 years 6 years   Hint:    Equation:        PW_A = 450(P/A, i, 6) + 200(P/F, i, 6) – 2000 PW_B = 600(P/A, i, 6) + 700(P/F, i, 6) – 3000 or Spreadsheet: PW_A = -PV(i, nper, pmt, fv) – 2000 = -PV(i, 6, 450, 200) - 2000 PW_B = -PV(i, nper, pmt, fv) – 3000 = -PV(i, 6, 600, 700) - 3000

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
Problem 1PS
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Consider two mutually exclusive alternative. Construction a choice table using PW for interest rate from 0% to 20%. If the minimum attractive rate of return is 8%, which alternative should be selected?

 

Alternative

A

B

Fist cost

$2,000

$3,000

Uniform annual benefit

$450

$600

Salvage Value

$200

700

Useful life

6 years

6 years

 

Hint:   

Equation:        PW_A = 450(P/A, i, 6) + 200(P/F, i, 6) – 2000

PW_B = 600(P/A, i, 6) + 700(P/F, i, 6) – 3000

or Spreadsheet:

PW_A = -PV(i, nper, pmt, fv) – 2000 = -PV(i, 6, 450, 200) - 2000

PW_B = -PV(i, nper, pmt, fv) – 3000 = -PV(i, 6, 600, 700) - 3000

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