The cash flows for two alternatives are shown. The correct equation for computing the AW of Alternative B at 10% per year interest is: A B First Cost, $ |-25,000 |-17000 Annual cost, $ per year -3000 |-3200 Salvage Value, $ 1100 2100 Life, years 5 O AW(B)=-17,000(A/P, 10%, 5) -3200 (A/P, 10%, 5)+2100(A/F, 10%, 5) AW(B)=-17,000 (A/P, 10%, 5)-3200-2100(A/F, 10%, 5) O AW(B)=-17,000 (A/P, 10%, 15)-3200+2100(A/F, 10%, 15) AW(B)=-17,000 (A/P, 10%, 5)-3200+2100(A/F, 10%, 5)

The cash flows for two alternatives are shown. The correct equation for computing the AW of Alternative B at 10% per year interest is: A B First Cost, $ |-25,000 |-17000 Annual cost, $ per year -3000 |-3200 Salvage Value, $ 1100 2100 Life, years 5 O AW(B)=-17,000(A/P, 10%, 5) -3200 (A/P, 10%, 5)+2100(A/F, 10%, 5) AW(B)=-17,000 (A/P, 10%, 5)-3200-2100(A/F, 10%, 5) O AW(B)=-17,000 (A/P, 10%, 15)-3200+2100(A/F, 10%, 15) AW(B)=-17,000 (A/P, 10%, 5)-3200+2100(A/F, 10%, 5)

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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The cash flow diagram below shows the net cash generated (A) every year with initial (1) investment requirement for a certain project whose lifetime is n=8 years with negligible (i.e. zero) salvage value at end of life. It is known that a simple payback period is three (3) years. What is the implied minimum acceptable rate of return (MARR) given this information? A >H I yrs.
A project has an initial capital outlay of Kshs.150,000 and unequal net cash-flows of Kshs 100,0000 in year one, Kshs 80,000 in year two, Kshs 70,000 in year three, Kshs 60,000 in year four, Kshs 50,000 in year five and a Kshs. 30,000 residual values at the end of its life in year six. REQUIRED i. Calculate the Accounting Rate of Return ii. Calculate the Internal Rate of Return iii. From your studies, what is the importance of Internal Rate of Return?
A company is investigating two production options of the manufactured switches that have the estimated cash flows shown. Which orne should be selected on the basis of a present worth analysis at 10% per year? In-house Contract First cost, P Annual cost, P per year Annual income, P per year 3,000,000 400,000 1,400,000 200,000 0: 200,000 3,100,000 Salvage value, P Life, years 5
Two mutually exclusive alternatives have the estimates shown below. Use annual worth analysis to determine which should be selected at an interest rate of 10% per year. Q $-44,000 R $-84,000 First Cost AOC per Year Salvage Value $-10,000 $-5,000 in year 1, increasing by $1,000 per year thereafter $4,000 $5,000 Life 2 years 4 years Alternative (Click to select) should be selected.
For project A, the cash flow effect from the change in net working capital is expected to be $490.00 at time 2 and the level of net working capital is expected to be $750.00 at time 1. What is the level of current assets for project A expected to be at time 2 if the level of current liabilities for project A is expected to be $2,600.00 at time 2? $2,860.00 (plus or minus $10) $3,840.00 (plus or minus $10) $1,360.00 (plus or minus $10) $2,340.00 (plus or minus $10) None of the above is within $10 of the correct answer
Consider the six indivisible investment alternatives shown below. The planning horizon is 8 years. The MARR is 15%. $60,000 is available for investment. a. Which investments should be made in order to maximize present worth? b. Solve part a when investments N and P are mutually exclusive and R is contingent on Q.
The cash flows for two mutually exclusive alternatives are as follow: A B - $500 - $600 -200 -300 500 150 400 300 300 450 Year 0 1 2 3 4 Each alternative has a 4-year useful life and no salvage value. The MARR is 12%. Which alternative should be selected based on: (a) Payback period (b) Benefit-cost ratio analysis (c) Rate of return analysis
Solve c) What is the payback period (PB) for this project?
1. Two mutually exclusive alternatives requiring different investments are being considered. The life of all two alternatives is estimated to be 20 years with no salvage value. The MARR that is considered is acceptable is 12%. The cash flows representing these two alternatives are as follows: Investment cost Net income per year Alternative A $100,000 $15,000 Alternative B $60,000 $11,000 Find the investment that should be selected using IRR on incremental investment (use PW formula).
Three machine alternatives are being evaluated by a company. The annual cash flows for each of these three alternatives are given in the table below (all in dollars). Based on the NPW criterion, rank these three alternatives from most attractive to least attractive assuming a MARR of 7% compounded annually. n Alternative 1 Alternative 2 Alternative 3 ======== 0 -1,400 -2.000 -1,000 1 300 300 400 2 500 600 400 ==================== ==#== 3 500 800 400 4 700 1,000 400 Alternative 1– Alternative 3 – Alternative 2 Alternative 2 – Alternative 3 – Alternative 1 Alternative 3 – Alternative 2 - Alternative 1 O Alternative 3 – Alternative 1- Alternative 2 O O O O
Compare the projects below using future worth analysis at i=16% per year. Apply LCM method, Write formula, use compound interest table for extracting factors, show your calculation step by step, and find final result. Draw cash flow diagram for both projects Project 1 Project 2 First cost Annual operating cost Salvage value Life, years -9000 -8000 -800 -800 700 1000 5 10
Compare the following investment alternatives using PW analysis and an annual interest rate of %12, compounded monthly. Alternative-A Alternative-B First cost, $ 240,000 450,000 Uniform Annual operating cost, $ 22,000 34,000 Uniform quarterly Benefit, $ 65,000 77,000 Salvage value, $ 120,000 230,000 Life, year 25 infinite

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