You have two mutually-exclusive projects. A "do-nothing" option is available. The first project (P1) has an initial investment of 17.2 million Czech crowns (CZK), and the first year's positive cash flow of 25.4 million CZK. The second year cash flow is a positive 5.2 million CZK. The second project (P2) has an initial cash flow in year 0 of a negative 20.2 million CZK The first year cash flow is a positive 36.2 million CZK. The second year cash flow is a negative 3.2 million CZK. MARR is 18% (a) The Arnual Equivalent Worth of the first project (P1) is CZK. (b) The Annual Equivalent Worth of the second project (P2) is CZK (9 The Internal Rate of Returm of P1 is (d) The Internal Rate of Return of P2 is %6 (e) The cash flows for the incremental investment P2-P1 are: -for year 0, • CZK -for year 1, : CZK, and for year 2, CZK O The Annual Equivalent Worth of the incremental investment P2-P1 is: CZK. lo The break even interest rates for the incremental investment P2-P1 are as follows. The smaller of the two rates i,*= 96 and the larger of the two rates = % Please note that if you are using the built-in unction in spreadsheet software to find these rates, you can apply a guess" of 20% for the frst rate (i) and 100% for the second rate () (h) The Internal Rate of Retum of the incremental investment P2-P1 is: % Please note that the "true" IR is not one of the break-even interest rates You con refer to Lacture 22 material, including the Video Example E22. (O Based on the incremental analyses using the AEW and IRR criteria, project should be chosen. Note: Please enter your answers to two decimal ploces. If using the interest factor method, opply the value of the fator presented in the tablE or spreadshsat hvith a Eour drima placsi
You have two mutually-exclusive projects. A "do-nothing" option is available. The first project (P1) has an initial investment of 17.2 million Czech crowns (CZK), and the first year's positive cash flow of 25.4 million CZK. The second year cash flow is a positive 5.2 million CZK. The second project (P2) has an initial cash flow in year 0 of a negative 20.2 million CZK The first year cash flow is a positive 36.2 million CZK. The second year cash flow is a negative 3.2 million CZK. MARR is 18% (a) The Arnual Equivalent Worth of the first project (P1) is CZK. (b) The Annual Equivalent Worth of the second project (P2) is CZK (9 The Internal Rate of Returm of P1 is (d) The Internal Rate of Return of P2 is %6 (e) The cash flows for the incremental investment P2-P1 are: -for year 0, • CZK -for year 1, : CZK, and for year 2, CZK O The Annual Equivalent Worth of the incremental investment P2-P1 is: CZK. lo The break even interest rates for the incremental investment P2-P1 are as follows. The smaller of the two rates i,*= 96 and the larger of the two rates = % Please note that if you are using the built-in unction in spreadsheet software to find these rates, you can apply a guess" of 20% for the frst rate (i) and 100% for the second rate () (h) The Internal Rate of Retum of the incremental investment P2-P1 is: % Please note that the "true" IR is not one of the break-even interest rates You con refer to Lacture 22 material, including the Video Example E22. (O Based on the incremental analyses using the AEW and IRR criteria, project should be chosen. Note: Please enter your answers to two decimal ploces. If using the interest factor method, opply the value of the fator presented in the tablE or spreadshsat hvith a Eour drima placsi
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Q1
Transcribed Image Text:You have two mutually-exclusive projects. A "do-nothing" option is available. The first project (P1) has an initial
investment of 172 million Czech crowns (CZO, and the first year's positive cash flow of 25.4 million CZK. The second
year cash flow is a positive 5.2 million CZK. The second project (P2) has an initial cash flow in year 0 of a negative 20.2
million CZK The first year cash flow is a positive 362 million CZK The second year cash flow is a negative 3.2 million
CZK. MARR is 18%
(a) The Annual Equivalent Worth of the first project (P1) is
CZK.
(b) The Annual Equivalent Worth of the second project (P2) is
CZK.
(9 The Internal Rate of Return of P1 is
(d) The Internal Rate of Retun of P2 is
(e) The cash flows for the incremental investment P2-P1 are:
For year 0,
• CZK,
for year 1,
CZK, and
Fior year 2.
CZK.
Mthe Annua Equivalent Worth of the incremental investment P2-P1 is:
CZK.
O The break even interest rates for the incremental investment P2-P1 are as follows. The smaller of the two rates i,=
9% and the larger
the two rates i2=
% Please note that if you are using the built-in
unction in spreodsheet software to find these rates, you can apply a guess" of 20% for the first rate () and 100% for
the second rate (1
h The Internal Rate of Retum of the incremental investment P2-P1 s:
P Please note that the "true" IRR
s not one of the break even interest rotes You con refer to Lacture 22 material including the Video Example E22,
O Based on the incremental analyses using the AEW and RR crteria, project
e should be chosen.
Note: Please enter your answers to two decimal plores. If using theE interest factor method, appyr the voiue of the factor
as presented in the table or spreadsheet with oll four decimal places).
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