Given the following data, use present worth analysis to find the better alternative, A or B.Use an analysis period of 12 years and 12% annual interest rate.ABInitial cost9,01014,542Annual benefit5,6279,399Salvage value1,247-2,4306 years4 yearsUseful lifeWhat is the difference between the present worth of alternative B and A, specificallywhat is PWB-PWA? State your answer with 2 decimal places

The problem pertains to present worth analysis. Present Worth Analysis, also referred to as Net…

Answered: Given the following data, use present…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 2QTD

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Consider the following two investment alternatives. Determine the range of investment costs for Alternative B (i.e., min. value < X
If a finite-life alternative (for example, 5 years) is compared to one with an indefinite or very long life, capitalized costs can be used. To determine capitalized cost for the finite life alternative, calculate the equivalent A value for one life cycle and divide by the interest rate. Select one: a. True b. False The annual worth method of comparing alternatives is often preferred to the present worth method, Select one: a. because AW for the first cycle is not the AW for the second. b. because the AW comparison is performed for only one life cycle. c. because AW is determined at MARR value. d. none of the answers. Last cash flow occurs in the same period as P Select one: a. False O b. True Straight line depreciation applies when book value decreases linearly with time. Select one: a. True b. False
Consider alternatives A and B as shown below. The interest rate is 9%. For parts a) and b), let X = $250. For parts a) and b), which alternative is preferred: a) by equivalent annual worth analysis? b) by payback period? c) Compute the value of X that makes the two alternatives equally desirable. Initial cost Uniform annual benefit Salvage value Useful life, in years A $500 200 100 5 B $900 X 120 5
Consider the following four alternatives. Three are do-something and one is Do -Nothing. Alternative A B D Cost $O $50 $30 $40 Net annual benefit Useful life (years) Which is the preferred alternative? If 10% interest rate is selected. Use PW analysis. $O $14 $5 $7 5 10 10
7. Future values (S2.1) Compute the future value of a $100 investment for the following combinations of rates and times. = 6%, t = 10 years. b. r= 6%, t = 20 years. c. r = 4%, t = 10 years. d. r = 4%, t = 20 years. a. r =
You are comparing two annuities. Annuity A pays $110 at the end of each year for 5 years. Annuity B pays $100 at the beginning of each year for 5 years. The rate of return on both annuities is 8 percent. Which one of the following statements is correct given this information? O Annuity B has both a higher present value and a higher future value than Annuity A. Annuity A has both a higher present value and a higher future value than Annuity B. O Annuity A has the same present value and future value as Annuity B.
Consider three mutually exclusive alternatives. The MARR is 10%. x Y z |- $125 - $60 - $65 20 15 Year 10 1 40 15 2 40 20 3 40 15 20 4 40 15 20 (a) For Alt. X, compute the benefit-cost ratio. (b) Based on the payback period, which alternative should be selected? (c) Determine the preferred altemative based on an exact economic analysis method.
Which one of the following indicates a project should be accepted? 1. NPV = -$2,281 2. IRR = 13.8 percent; Required return = 14.5 percent 3. Discounted payback = 3.41 years; Required discounted payback = 3 years 4. None of the above
(b) Suppose that the allocation of a natural resource during three years results in a stream of total surplus value of $100 per period t (i.e.: t = 0; 1; 2). Obtain the present value of this stream when the discount rate is r = 0:10 and also when it is r = 0:05. Annuity amount (A) = $100 Time Period (n) = 3 years Discount rate (r) = 10% or 0.10 & 5% or 0.05 Present value of this stream when the discount rate is 10%: PVA = PV = A (P/A, r, n) PV = 100 (P/A, 0.10, 3) PV = 248.69 Present value of this stream when the discount rate is 5%: PVA = PV = A (P/A, r, n) PV = 100 (P/A, 0.5, 3) PV = 272.3 (c) Alternatively, the resource could be fully extracted now (say, in the period t = 0), resulting in a total surplus $280 at t = 0 and 0 in every future period. Is this immediate extraction strategy preferred to the extraction strategy described in (a) when r = 0:10? What about when r = 0:05? What does this tell us about the intuitive meaning of discounting regarding intertemporal…
Assume that you will receive $2500 at the end of 6 years and want to know the present value (PV) of that future sum. Assuming a positive interest rate (required rate of return), which of the following is a possible number for the present value of the $2500? Even without knowing the interest rate, it is possible to answer this question. O A. $2742.53 B. $2632.45 O C. $1967.25 OD. $2572.50 O E. None of the above is a possible number.
When comparing two projects with different lives, why do you compute an annuity with an equivalent present value (PV) to the net present value (NPV)? A. so that the projects can be compared on their cost or value created per year B. to reduce the danger that changes in the estimate of the discount rate will lead to choosing the project with a shorter time frame C. so that you can see which project has the greatest net present value (NPV) D. to avoid complications arising from alternating cash inflows and outflows O E. to ensure that cash flows from the project with a longer life that occur after the project with the shorter life has ended are considered
Find the PV and FV of an investment that makes the following end-of-year payments. The interest rate is 8%. Year Payment 1 100 2 200 3 400 Rate = 8% To find the PV, use the NPV function: PV = Year Payment x (1 + I )^(N-t) = FV1 100 1.17 116.64 2 200 1.08 216.00 3 400 1.00 400.00 Sum = ?PV = ?FV of PV = ?

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