Joan, the project manager, asks you to evaluate alternatives A and B on the basis of their PW values using a real interest rate of 10% per year and an inflation rate of 3% per year (a) without any adjustment for inflation, and (b) with inflation considered. Also, write the spreadsheet functions that will display the correct PW values. (c) Joan clearly wants alternative A to be selected. If inflation is steady at 3% per year, what real return i would machine A have to generate each year to make the choice between A and B indifferent? What is the required return with inflation considered? Machine A B First cost, $ −31,000 −48,000 AOC, $ per year −28,000 −19,000 Salvage, $ 5,000 7,000 Life, years 5 5
Joan, the project manager, asks you to evaluate alternatives
A and B on the basis of their PW values using
a real interest rate of 10% per year and an inflation rate
of 3% per year (a) without any adjustment for inflation,
and (b) with inflation considered. Also, write the
spreadsheet functions that will display the correct PW
values. (c) Joan clearly wants alternative A to be selected.
If inflation is steady at 3% per year, what real
return i would machine A have to generate each year
to make the choice between A and B indifferent?
What is the required return with inflation considered?
Machine A B
First cost, $ −31,000 −48,000
AOC, $ per year −28,000 −19,000
Salvage, $ 5,000 7,000
Life, years 5 5
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