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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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At 10% interest, what is the nearest benefit/cost ratio for the following private sector project? **Project Details:** - **Initial Cost:** $200,000 - **Additional Costs at the End of Year 1-2:** $30,000 - **Annual Benefits at the End of Year 1-10:** $90,000 - **Salvage Value:** $40,000 - **Project Life:** 10 years **Note:** Consider the following equation setup: - **FW(Benefits) = Annual Benefits ⋅ (F/A, 10%, 10)** - **FW(Costs) = Initial Costs + Additional Costs ⋅ (F/P, 10%, 8) − Salvage Value** **10% Compound Interest Factors Chart:** | Year | F/P | P/F | P/A | A/F | A/P | F/A | P/A | |------|------|-------|-------|-------|-------|-------|-------| | 1 | 1.100| 0.9091| 1.0000| 1.0000| 1.0000| 1.0000| 0.909 | | 2 | 1.210| 0.8264| 0.4762| 0.5762| 2.100 | 1.736 | | | 3 | 1.331| 0.7513| 0.3021| 0.4021| 3.310 | 2.487 | | | 4 | 1.464| 0.6830| 0.2155| 0.3155| 4.641 | 3.170 | | | 5 | 1.611| 0.6209| 0.1638| 0.2638| 6.105 | 3.791 | | | 6 | 1.772| 0.5645| 0.1296| 0.2296| 7.716 | 4.355 | | | 7 | 1.949| 0.5132| 0.1029| 0.2029| 9.487 | 4.868 | | |
Transcribed Image Text:At 10% interest, what is the nearest benefit/cost ratio for the following private sector project? **Project Details:** - **Initial Cost:** $200,000 - **Additional Costs at the End of Year 1-2:** $30,000 - **Annual Benefits at the End of Year 1-10:** $90,000 - **Salvage Value:** $40,000 - **Project Life:** 10 years **Note:** Consider the following equation setup: - **FW(Benefits) = Annual Benefits ⋅ (F/A, 10%, 10)** - **FW(Costs) = Initial Costs + Additional Costs ⋅ (F/P, 10%, 8) − Salvage Value** **10% Compound Interest Factors Chart:** | Year | F/P | P/F | P/A | A/F | A/P | F/A | P/A | |------|------|-------|-------|-------|-------|-------|-------| | 1 | 1.100| 0.9091| 1.0000| 1.0000| 1.0000| 1.0000| 0.909 | | 2 | 1.210| 0.8264| 0.4762| 0.5762| 2.100 | 1.736 | | | 3 | 1.331| 0.7513| 0.3021| 0.4021| 3.310 | 2.487 | | | 4 | 1.464| 0.6830| 0.2155| 0.3155| 4.641 | 3.170 | | | 5 | 1.611| 0.6209| 0.1638| 0.2638| 6.105 | 3.791 | | | 6 | 1.772| 0.5645| 0.1296| 0.2296| 7.716 | 4.355 | | | 7 | 1.949| 0.5132| 0.1029| 0.2029| 9.487 | 4.868 | | |
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