**Educational Content on Equivalent Annual Net Benefit****Problem Statement:**Which of the following projects has the larger Equivalent Annual Net Benefit if the interest rate is 4%?**Data Table:**| Time | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 ||------|-----|-----|----|----|----|----|----|----|| Project A (NB) | -20 | -10 | 5 | 10 | 10 | 10 | 10 | 5 || Project B (NB) | -30 | 10 | 15 | 15 | 5 | | | |**Explanation:**The table above presents two projects, A and B, with their respective Net Benefits (NB) over an 8-year period.- **Project A** shows fluctuating annual net benefits starting with negative values in the first two years, followed by gradual increases and stable positive values in later years.- **Project B** also starts with a negative value in the first year but then reflects positive benefits over the next few years, without data beyond year 5.To determine which project has a larger Equivalent Annual Net Benefit at an interest rate of 4%, you would evaluate the present value of each project's cash flows and convert them into equivalent annual amounts using the specified interest rate. This analysis helps in understanding which project yields a better financial performance on an annual basis, considering the time value of money.

EQUIVALENT ANNUAL NET BENEFIT (EANB) is the amount received each year for the life of project which has same NPV. Formula: EANB=R×NPV1-1+R-N R = rate of return N = life of project NPV = NET PRESENT VALUE PF PROJECTPROJECT A, TIME CASHFLOW DISCOUNTING FACTOR PV 1 -20 0.961538 -19.23 2 -10 0.924556 -9.25 3 5 0.888996 4.44 4 10 0.854804 8.55 5 10 0.821927 8.22 6 10 0.790315 7.90 7 10 0.759918 7.60 8 5 0.73069 3.65 NPV 11.89 APPLYING FORMULAFOR EANB: EANB=R×NPV1-1+R-N=4%×11.891-1+4%-8=1.77PROJECT B. R = 4% TIME CASHFLOW DISCOUNTING FACTOR PV 1 -30 0.961538 -28.85 2 10 0.924556 9.25 3 15 0.888996 13.33 4 15 0.854804 12.82 5 5 0.821927 4.11 6 0 0.790315 0.00 7 0 0.759918 0.00 8 0 0.73069 0.00 NPV 10.67 APPLYING FORMULA FOR EANB: EANB=R×NPV1-1+R-N=4%×10.671-1+4%-5=2.40 ANSWER: PROJECT B HAS LARGER EANB.

Answered: Which of the following projects has the…

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Which of the following projects has the larger Equivalent Annual Net Benefit if the interest rate is 4%? Time 1 Project 2 4 5 NB -20 -1o 5 10 10 10 10 5 A Project, NB -30 10 15 15 5 00 3.

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

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

**Educational Content on Equivalent Annual Net Benefit**

**Problem Statement:**

Which of the following projects has the larger Equivalent Annual Net Benefit if the interest rate is 4%?

**Data Table:**

| Time | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
|------|-----|-----|----|----|----|----|----|----|
| Project A (NB) | -20 | -10 | 5 | 10 | 10 | 10 | 10 | 5 |
| Project B (NB) | -30 | 10 | 15 | 15 | 5 | | | |

**Explanation:**

The table above presents two projects, A and B, with their respective Net Benefits (NB) over an 8-year period.

- **Project A** shows fluctuating annual net benefits starting with negative values in the first two years, followed by gradual increases and stable positive values in later years.
- **Project B** also starts with a negative value in the first year but then reflects positive benefits over the next few years, without data beyond year 5.

To determine which project has a larger Equivalent Annual Net Benefit at an interest rate of 4%, you would evaluate the present value of each project's cash flows and convert them into equivalent annual amounts using the specified interest rate. This analysis helps in understanding which project yields a better financial performance on an annual basis, considering the time value of money.

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The net present value of a project is $200000 at the discount rate of 14.8 percent. Which of the following could be the IRR of this project? Select one: a.11.92 b.17.3 c.12.75 d. 12.14 e.12.75
5. Compare the following 2 alternatives with a method of your choice. The market rate is 6% and inflation is expected to run at 2.5% per year. Alt A B Construction cost $ Benefits $/yr 450,000 380,000 2,000,000 1,500,000 Salvage 200,000 150,000 Life (yrs) 12 9
3. A. B. C. time Capital Budgeting Project S Project L D. 0 -1000 -1000 1 500 100 2 400 200 3 300 300 4 200 400 5 100 500 USE NPV METHOD, assuming the WACC is 10%. Which project will you invest? Use IRR method, which project will you invest? Assuming WACC is 10%, use MIRR, which project will you invest? Use payback period method, which project will you invest?
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#3 HE Year Project A Project B 0 -$20,000 -$23,000 1 2 3 15,200 5,900 2,100 14,300 8.100 7,100 Suppose the company uses the NPV rule to rank these two projects. Which project should be chosen if the appropriate discount rate is 15 percent?
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
Calculate the result of NPV for project A with discount rate = 10%, the best solution is: Year 0 123 + 4 Select one: a. 95.5 b. 127.3 O b. O C. c. -181.8 O d. d. -136.4 A -800 100 200 300 200 B -200 50 70 80 240
kl. 258.
5. Project A has the net present value at a discount rate of 17% is $5,380 and at a rate of 19% the net present value is at ($2,670). What is the internal rate of return for the project? A 15.7% B 16.5% C 18.3% D 17.6%

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