i. Alternative to be selected if interest rate is 6%.

Question

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Answer 1

Question

Chapter 5, Problem 69P

To determine

i.

Alternative to be selected if interest rate is 6%.

Expert Solution

Answer to Problem 69P

Alternative A is the correct answer.

Explanation of Solution

Given:

Interest Rate is 6%

	A	B	C
Installed Cost	$10,000	$15,000	$20,000
Annual Benefit	1,625	1,530	1,890
Useful Life(yrs)	10	20	20

Concept used:

RATE OF RETURN: It is a return which usually an investor gets on speculation. Investment can be done on shares, bonds etc. If rate of return is calculated for a fiscal year, then it is termed as annual rate of return.

Calculation:

Net Present worth analysis of Option- A

Formula used to calculate the present worth is given below:

PW = −P+A(P/A,i,n)−F(P/F,i,n) ........(1)

Here,

P is the initial cost of the alternative ($10000)

A is the uniform annual benefit ($1625)

F₁is additional investment required in replacement ($10000) (in year- 10)

I is the interest rate (6%)

Substitute the values in above formula:

PW

= −$10000+$1625(P/A,6%,20)−$10000(P/F,6%,10)= −$10000+$1625(11.470)−$10000(0.5584)=−$10000+$18638.75−$5584=$3054.75

Thus, the present worth of the option A is $3054.75

Net present Worth Analysis of option B

Formula used to calculate the Present worth is given below:

PW = −P+A(P/A,i,n)

Here,

P is the initial cost of the alternative ($15000)

A is the uniform annual benefit ($1530)

i is the interest rate (6%)

n is the time period (20 years)

Substitute the values in above formula

PW =

= −$15000+$1530(P/A,6%,20)= −$15000+$1530(11.470)=−$15000+$17549.10=$2549.10

Thus, the present worth of the option B is $2549.10

Net Present Worth Analysis of option C

Formula used to calculate the present worth is given below:

PW = −P+A(P/A,i,n)

Here,

P is the initial cost of the alternative ($20000)

A is the uniform annual benefit ($1890)

i is the interest rate (6%)

n is the time period (20 years)

Substitute the values in above formula

PW =

=−$20000+$1890(P/A,6%,20)=−$20000+$21678.30=$1678.30

Thus, the present worth of the analysis C is $1678.30.

Conclusion:

Using the present worth analysis, the best alternative is alternative A as the present worth of alternative A is highest among three options.

Thus alternative A is the correct answer.

To determine

ii.

Best alternative is selected.

Expert Solution

Answer to Problem 69P

Alternative A is selected.

Explanation of Solution

Given:

Interest Rate is 3%.

Concept used:

RATE OF RETURN: It is a return which usually an investor gets on speculation. Investment can be done on shares, bonds etc. If rate of return is calculated for a fiscal year, then it is termed as annual rate of return.

Calculation:

Net Present worth analysis of Option- A

Formula used to calculate the present worth is given below:

PW = −P+A(P/A,i,n)−F(P/F,i,n) ........(1)

Here,

P is the initial cost of the alternative ($10000)

A is the uniform annual benefit ($1625)

F₁is additional investment required in replacement ($10000) (in year- 10)

I is the interest rate (6%)

Substitute the values in above formula:

PW

= −$10000+$1625(P/A,6%,20)−$10000(P/F,6%,10)= −$10000+$1625(11.470)−$10000(0.5584)=−$10000+$18638.75−$5584=$3054.75

Thus, the present worth of the option A is $3054.75

Net present Worth Analysis of option B

Formula used to calculate the Present worth is given below:

PW = −P+A(P/A,i,n)

Here,

P is the initial cost of the alternative ($15000)

A is the uniform annual benefit ($1530)

i is the interest rate (6%)

n is the time period (20 years)

Substitute the values in above formula

PW =

= −$15000+$1530(P/A,6%,20)= −$15000+$1530(11.470)=−$15000+$17549.10=$2549.10

Thus, the present worth of the option B is $2549.10

Net Present Worth Analysis of option C

Formula used to calculate the present worth is given below:

PW = −P+A(P/A,i,n)

Here,

P is the initial cost of the alternative ($20000)

A is the uniform annual benefit ($1890)

i is the interest rate (6%)

n is the time period (20 years)

Substitute the values in above formula

PW =

=−$20000+$1890(P/A,6%,20)=−$20000+$21678.30=$1678.30

Thus, the present worth of the analysis C is $1678.30.

Conclusion:

Alternative A is selected.

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Students have asked these similar questions

1. Riaz has a limited income and consumes only Apple and Bread. His current consumption choice is 3 apples and 5 bread. The price of apple is $3 each, and the price of bread is $2.5 each. The last apple added 5 units to Sadid's utility, while the last bread added 7 units. Is Riaz making the utility-maximizing choice? Why or why not? Do you suggest any adjustment in Riaz's consumption bundle? Why or why not? Give reasons in support of your answer. State the condition for a consumer's utility maximizing choice and illustrate graphically. 2. Consider the following table of long-run total costs for three different firms: Quantity Total Cost ($) Firm A Firm B Firm C 1 60 11 21 2 70 24 34 3 80 39 49 4 90 56 66 5 100 75 85 6 110 96 106 7 120 119 129 Does each of these firms experience economies of scale or diseconomies of scale? Explain your answer with necessary calculations.

Riaz has a limited income and consumes only Apple and Bread. His current consumption choice is 3 apples and 5 bread. The price of apple is $3 each, and the price of bread is $2.5 each. The last apple added 5 units to Sadid's utility, while the last bread added 7 units. Is Riaz making the utility-maximizing choice? Why or why not? Do you suggest any adjustment in Riaz's consumption bundle? Why or why not? Give reasons in support of your answer.State the condition for a consumer's utility maximizing choice and illustrate graphically.

1. Riaz has a limited income and consumes only Apple and Bread. His current consumption choice is 3 apples and 5 bread. The price of apple is $3 each, and the price of bread is $2.5 each. The last apple added 5 units to Sadid's utility, while the last bread added 7 units. Is Riaz making the utility-maximizing choice? Why or why not? Do you suggest any adjustment in Riaz's consumption bundle? Why or why not? Give reasons in support of your answer. State the condition for a consumer's utility maximizing choice and illustrate graphically.

Answer 2

Question

Chapter 5, Problem 69P

To determine

i.

Alternative to be selected if interest rate is 6%.

Expert Solution

Answer to Problem 69P

Alternative A is the correct answer.

Explanation of Solution

Given:

Interest Rate is 6%

	A	B	C
Installed Cost	$10,000	$15,000	$20,000
Annual Benefit	1,625	1,530	1,890
Useful Life(yrs)	10	20	20

Concept used:

RATE OF RETURN: It is a return which usually an investor gets on speculation. Investment can be done on shares, bonds etc. If rate of return is calculated for a fiscal year, then it is termed as annual rate of return.

Calculation:

Net Present worth analysis of Option- A

Formula used to calculate the present worth is given below:

PW = −P+A(P/A,i,n)−F(P/F,i,n) ........(1)

Here,

P is the initial cost of the alternative ($10000)

A is the uniform annual benefit ($1625)

F₁is additional investment required in replacement ($10000) (in year- 10)

I is the interest rate (6%)

Substitute the values in above formula:

PW

= −$10000+$1625(P/A,6%,20)−$10000(P/F,6%,10)= −$10000+$1625(11.470)−$10000(0.5584)=−$10000+$18638.75−$5584=$3054.75

Thus, the present worth of the option A is $3054.75

Net present Worth Analysis of option B

Formula used to calculate the Present worth is given below:

PW = −P+A(P/A,i,n)

Here,

P is the initial cost of the alternative ($15000)

A is the uniform annual benefit ($1530)

i is the interest rate (6%)

n is the time period (20 years)

Substitute the values in above formula

PW =

= −$15000+$1530(P/A,6%,20)= −$15000+$1530(11.470)=−$15000+$17549.10=$2549.10

Thus, the present worth of the option B is $2549.10

Net Present Worth Analysis of option C

Formula used to calculate the present worth is given below:

PW = −P+A(P/A,i,n)

Here,

P is the initial cost of the alternative ($20000)

A is the uniform annual benefit ($1890)

i is the interest rate (6%)

n is the time period (20 years)

Substitute the values in above formula

PW =

=−$20000+$1890(P/A,6%,20)=−$20000+$21678.30=$1678.30

Thus, the present worth of the analysis C is $1678.30.

Conclusion:

Using the present worth analysis, the best alternative is alternative A as the present worth of alternative A is highest among three options.

Thus alternative A is the correct answer.

To determine

ii.

Best alternative is selected.

Expert Solution

Answer to Problem 69P

Alternative A is selected.

Explanation of Solution

Given:

Interest Rate is 3%.

Concept used:

RATE OF RETURN: It is a return which usually an investor gets on speculation. Investment can be done on shares, bonds etc. If rate of return is calculated for a fiscal year, then it is termed as annual rate of return.

Calculation:

Net Present worth analysis of Option- A

Formula used to calculate the present worth is given below:

PW = −P+A(P/A,i,n)−F(P/F,i,n) ........(1)

Here,

P is the initial cost of the alternative ($10000)

A is the uniform annual benefit ($1625)

F₁is additional investment required in replacement ($10000) (in year- 10)

I is the interest rate (6%)

Substitute the values in above formula:

PW

= −$10000+$1625(P/A,6%,20)−$10000(P/F,6%,10)= −$10000+$1625(11.470)−$10000(0.5584)=−$10000+$18638.75−$5584=$3054.75

Thus, the present worth of the option A is $3054.75

Net present Worth Analysis of option B

Formula used to calculate the Present worth is given below:

PW = −P+A(P/A,i,n)

Here,

P is the initial cost of the alternative ($15000)

A is the uniform annual benefit ($1530)

i is the interest rate (6%)

n is the time period (20 years)

Substitute the values in above formula

PW =

= −$15000+$1530(P/A,6%,20)= −$15000+$1530(11.470)=−$15000+$17549.10=$2549.10

Thus, the present worth of the option B is $2549.10

Net Present Worth Analysis of option C

Formula used to calculate the present worth is given below:

PW = −P+A(P/A,i,n)

Here,

P is the initial cost of the alternative ($20000)

A is the uniform annual benefit ($1890)

i is the interest rate (6%)

n is the time period (20 years)

Substitute the values in above formula

PW =

=−$20000+$1890(P/A,6%,20)=−$20000+$21678.30=$1678.30

Thus, the present worth of the analysis C is $1678.30.

Conclusion:

Alternative A is selected.

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Answer 3

Question

Chapter 5, Problem 69P

To determine

i.

Alternative to be selected if interest rate is 6%.

Expert Solution

Answer to Problem 69P

Alternative A is the correct answer.

Explanation of Solution

Given:

Interest Rate is 6%

	A	B	C
Installed Cost	$10,000	$15,000	$20,000
Annual Benefit	1,625	1,530	1,890
Useful Life(yrs)	10	20	20

Concept used:

RATE OF RETURN: It is a return which usually an investor gets on speculation. Investment can be done on shares, bonds etc. If rate of return is calculated for a fiscal year, then it is termed as annual rate of return.

Calculation:

Net Present worth analysis of Option- A

Formula used to calculate the present worth is given below:

PW = −P+A(P/A,i,n)−F(P/F,i,n) ........(1)

Here,

P is the initial cost of the alternative ($10000)

A is the uniform annual benefit ($1625)

F₁is additional investment required in replacement ($10000) (in year- 10)

I is the interest rate (6%)

Substitute the values in above formula:

PW

= −$10000+$1625(P/A,6%,20)−$10000(P/F,6%,10)= −$10000+$1625(11.470)−$10000(0.5584)=−$10000+$18638.75−$5584=$3054.75

Thus, the present worth of the option A is $3054.75

Net present Worth Analysis of option B

Formula used to calculate the Present worth is given below:

PW = −P+A(P/A,i,n)

Here,

P is the initial cost of the alternative ($15000)

A is the uniform annual benefit ($1530)

i is the interest rate (6%)

n is the time period (20 years)

Substitute the values in above formula

PW =

= −$15000+$1530(P/A,6%,20)= −$15000+$1530(11.470)=−$15000+$17549.10=$2549.10

Thus, the present worth of the option B is $2549.10

Net Present Worth Analysis of option C

Formula used to calculate the present worth is given below:

PW = −P+A(P/A,i,n)

Here,

P is the initial cost of the alternative ($20000)

A is the uniform annual benefit ($1890)

i is the interest rate (6%)

n is the time period (20 years)

Substitute the values in above formula

PW =

=−$20000+$1890(P/A,6%,20)=−$20000+$21678.30=$1678.30

Thus, the present worth of the analysis C is $1678.30.

Conclusion:

Using the present worth analysis, the best alternative is alternative A as the present worth of alternative A is highest among three options.

Thus alternative A is the correct answer.

To determine

ii.

Best alternative is selected.

Expert Solution

Answer to Problem 69P

Alternative A is selected.

Explanation of Solution

Given:

Interest Rate is 3%.

Concept used:

RATE OF RETURN: It is a return which usually an investor gets on speculation. Investment can be done on shares, bonds etc. If rate of return is calculated for a fiscal year, then it is termed as annual rate of return.

Calculation:

Net Present worth analysis of Option- A

Formula used to calculate the present worth is given below:

PW = −P+A(P/A,i,n)−F(P/F,i,n) ........(1)

Here,

P is the initial cost of the alternative ($10000)

A is the uniform annual benefit ($1625)

F₁is additional investment required in replacement ($10000) (in year- 10)

I is the interest rate (6%)

Substitute the values in above formula:

PW

= −$10000+$1625(P/A,6%,20)−$10000(P/F,6%,10)= −$10000+$1625(11.470)−$10000(0.5584)=−$10000+$18638.75−$5584=$3054.75

Thus, the present worth of the option A is $3054.75

Net present Worth Analysis of option B

Formula used to calculate the Present worth is given below:

PW = −P+A(P/A,i,n)

Here,

P is the initial cost of the alternative ($15000)

A is the uniform annual benefit ($1530)

i is the interest rate (6%)

n is the time period (20 years)

Substitute the values in above formula

PW =

= −$15000+$1530(P/A,6%,20)= −$15000+$1530(11.470)=−$15000+$17549.10=$2549.10

Thus, the present worth of the option B is $2549.10

Net Present Worth Analysis of option C

Formula used to calculate the present worth is given below:

PW = −P+A(P/A,i,n)

Here,

P is the initial cost of the alternative ($20000)

A is the uniform annual benefit ($1890)

i is the interest rate (6%)

n is the time period (20 years)

Substitute the values in above formula

PW =

=−$20000+$1890(P/A,6%,20)=−$20000+$21678.30=$1678.30

Thus, the present worth of the analysis C is $1678.30.

Conclusion:

Alternative A is selected.

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Answer 4

Question

Chapter 5, Problem 69P

To determine

i.

Alternative to be selected if interest rate is 6%.

Expert Solution

Answer to Problem 69P

Alternative A is the correct answer.

Explanation of Solution

Given:

Interest Rate is 6%

	A	B	C
Installed Cost	$10,000	$15,000	$20,000
Annual Benefit	1,625	1,530	1,890
Useful Life(yrs)	10	20	20

Concept used:

RATE OF RETURN: It is a return which usually an investor gets on speculation. Investment can be done on shares, bonds etc. If rate of return is calculated for a fiscal year, then it is termed as annual rate of return.

Calculation:

Net Present worth analysis of Option- A

Formula used to calculate the present worth is given below:

PW = −P+A(P/A,i,n)−F(P/F,i,n) ........(1)

Here,

P is the initial cost of the alternative ($10000)

A is the uniform annual benefit ($1625)

F₁is additional investment required in replacement ($10000) (in year- 10)

I is the interest rate (6%)

Substitute the values in above formula:

PW

= −$10000+$1625(P/A,6%,20)−$10000(P/F,6%,10)= −$10000+$1625(11.470)−$10000(0.5584)=−$10000+$18638.75−$5584=$3054.75

Thus, the present worth of the option A is $3054.75

Net present Worth Analysis of option B

Formula used to calculate the Present worth is given below:

PW = −P+A(P/A,i,n)

Here,

P is the initial cost of the alternative ($15000)

A is the uniform annual benefit ($1530)

i is the interest rate (6%)

n is the time period (20 years)

Substitute the values in above formula

PW =

= −$15000+$1530(P/A,6%,20)= −$15000+$1530(11.470)=−$15000+$17549.10=$2549.10

Thus, the present worth of the option B is $2549.10

Net Present Worth Analysis of option C

Formula used to calculate the present worth is given below:

PW = −P+A(P/A,i,n)

Here,

P is the initial cost of the alternative ($20000)

A is the uniform annual benefit ($1890)

i is the interest rate (6%)

n is the time period (20 years)

Substitute the values in above formula

PW =

=−$20000+$1890(P/A,6%,20)=−$20000+$21678.30=$1678.30

Thus, the present worth of the analysis C is $1678.30.

Conclusion:

Using the present worth analysis, the best alternative is alternative A as the present worth of alternative A is highest among three options.

Thus alternative A is the correct answer.

To determine

ii.

Best alternative is selected.

Expert Solution

Answer to Problem 69P

Alternative A is selected.

Explanation of Solution

Given:

Interest Rate is 3%.

Concept used:

RATE OF RETURN: It is a return which usually an investor gets on speculation. Investment can be done on shares, bonds etc. If rate of return is calculated for a fiscal year, then it is termed as annual rate of return.

Calculation:

Net Present worth analysis of Option- A

Formula used to calculate the present worth is given below:

PW = −P+A(P/A,i,n)−F(P/F,i,n) ........(1)

Here,

P is the initial cost of the alternative ($10000)

A is the uniform annual benefit ($1625)

F₁is additional investment required in replacement ($10000) (in year- 10)

I is the interest rate (6%)

Substitute the values in above formula:

PW

= −$10000+$1625(P/A,6%,20)−$10000(P/F,6%,10)= −$10000+$1625(11.470)−$10000(0.5584)=−$10000+$18638.75−$5584=$3054.75

Thus, the present worth of the option A is $3054.75

Net present Worth Analysis of option B

Formula used to calculate the Present worth is given below:

PW = −P+A(P/A,i,n)

Here,

P is the initial cost of the alternative ($15000)

A is the uniform annual benefit ($1530)

i is the interest rate (6%)

n is the time period (20 years)

Substitute the values in above formula

PW =

= −$15000+$1530(P/A,6%,20)= −$15000+$1530(11.470)=−$15000+$17549.10=$2549.10

Thus, the present worth of the option B is $2549.10

Net Present Worth Analysis of option C

Formula used to calculate the present worth is given below:

PW = −P+A(P/A,i,n)

Here,

P is the initial cost of the alternative ($20000)

A is the uniform annual benefit ($1890)

i is the interest rate (6%)

n is the time period (20 years)

Substitute the values in above formula

PW =

=−$20000+$1890(P/A,6%,20)=−$20000+$21678.30=$1678.30

Thus, the present worth of the analysis C is $1678.30.

Conclusion:

Alternative A is selected.

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Answer 5

Chapter 5, Problem 69P

To determine

i.

Alternative to be selected if interest rate is 6%.

Expert Solution

Answer to Problem 69P

Alternative A is the correct answer.

Explanation of Solution

Given:

Interest Rate is 6%

	A	B	C
Installed Cost	$10,000	$15,000	$20,000
Annual Benefit	1,625	1,530	1,890
Useful Life(yrs)	10	20	20

Concept used:

RATE OF RETURN: It is a return which usually an investor gets on speculation. Investment can be done on shares, bonds etc. If rate of return is calculated for a fiscal year, then it is termed as annual rate of return.

Calculation:

Net Present worth analysis of Option- A

Formula used to calculate the present worth is given below:

PW = −P+A(P/A,i,n)−F(P/F,i,n) ........(1)

Here,

P is the initial cost of the alternative ($10000)

A is the uniform annual benefit ($1625)

F₁is additional investment required in replacement ($10000) (in year- 10)

I is the interest rate (6%)

Substitute the values in above formula:

PW

= −$10000+$1625(P/A,6%,20)−$10000(P/F,6%,10)= −$10000+$1625(11.470)−$10000(0.5584)=−$10000+$18638.75−$5584=$3054.75

Thus, the present worth of the option A is $3054.75

Net present Worth Analysis of option B

Formula used to calculate the Present worth is given below:

PW = −P+A(P/A,i,n)

Here,

P is the initial cost of the alternative ($15000)

A is the uniform annual benefit ($1530)

i is the interest rate (6%)

n is the time period (20 years)

Substitute the values in above formula

PW =

= −$15000+$1530(P/A,6%,20)= −$15000+$1530(11.470)=−$15000+$17549.10=$2549.10

Thus, the present worth of the option B is $2549.10

Net Present Worth Analysis of option C

Formula used to calculate the present worth is given below:

PW = −P+A(P/A,i,n)

Here,

P is the initial cost of the alternative ($20000)

A is the uniform annual benefit ($1890)

i is the interest rate (6%)

n is the time period (20 years)

Substitute the values in above formula

PW =

=−$20000+$1890(P/A,6%,20)=−$20000+$21678.30=$1678.30

Thus, the present worth of the analysis C is $1678.30.

Conclusion:

Using the present worth analysis, the best alternative is alternative A as the present worth of alternative A is highest among three options.

Thus alternative A is the correct answer.

To determine

ii.

Best alternative is selected.

Expert Solution

Answer to Problem 69P

Alternative A is selected.

Explanation of Solution

Given:

Interest Rate is 3%.

Concept used:

RATE OF RETURN: It is a return which usually an investor gets on speculation. Investment can be done on shares, bonds etc. If rate of return is calculated for a fiscal year, then it is termed as annual rate of return.

Calculation:

Net Present worth analysis of Option- A

Formula used to calculate the present worth is given below:

PW = −P+A(P/A,i,n)−F(P/F,i,n) ........(1)

Here,

P is the initial cost of the alternative ($10000)

A is the uniform annual benefit ($1625)

F₁is additional investment required in replacement ($10000) (in year- 10)

I is the interest rate (6%)

Substitute the values in above formula:

PW

= −$10000+$1625(P/A,6%,20)−$10000(P/F,6%,10)= −$10000+$1625(11.470)−$10000(0.5584)=−$10000+$18638.75−$5584=$3054.75

Thus, the present worth of the option A is $3054.75

Net present Worth Analysis of option B

Formula used to calculate the Present worth is given below:

PW = −P+A(P/A,i,n)

Here,

P is the initial cost of the alternative ($15000)

A is the uniform annual benefit ($1530)

i is the interest rate (6%)

n is the time period (20 years)

Substitute the values in above formula

PW =

= −$15000+$1530(P/A,6%,20)= −$15000+$1530(11.470)=−$15000+$17549.10=$2549.10

Thus, the present worth of the option B is $2549.10

Net Present Worth Analysis of option C

Formula used to calculate the present worth is given below:

PW = −P+A(P/A,i,n)

Here,

P is the initial cost of the alternative ($20000)

A is the uniform annual benefit ($1890)

i is the interest rate (6%)

n is the time period (20 years)

Substitute the values in above formula

PW =

=−$20000+$1890(P/A,6%,20)=−$20000+$21678.30=$1678.30

Thus, the present worth of the analysis C is $1678.30.

Conclusion:

Alternative A is selected.

Answer 6

Chapter 5, Problem 69P

To determine

i.

Alternative to be selected if interest rate is 6%.

Expert Solution

Answer to Problem 69P

Alternative A is the correct answer.

Explanation of Solution

Given:

Interest Rate is 6%

	A	B	C
Installed Cost	$10,000	$15,000	$20,000
Annual Benefit	1,625	1,530	1,890
Useful Life(yrs)	10	20	20

Concept used:

RATE OF RETURN: It is a return which usually an investor gets on speculation. Investment can be done on shares, bonds etc. If rate of return is calculated for a fiscal year, then it is termed as annual rate of return.

Calculation:

Net Present worth analysis of Option- A

Formula used to calculate the present worth is given below:

PW = −P+A(P/A,i,n)−F(P/F,i,n) ........(1)

Here,

P is the initial cost of the alternative ($10000)

A is the uniform annual benefit ($1625)

F₁is additional investment required in replacement ($10000) (in year- 10)

I is the interest rate (6%)

Substitute the values in above formula:

PW

= −$10000+$1625(P/A,6%,20)−$10000(P/F,6%,10)= −$10000+$1625(11.470)−$10000(0.5584)=−$10000+$18638.75−$5584=$3054.75

Thus, the present worth of the option A is $3054.75

Net present Worth Analysis of option B

Formula used to calculate the Present worth is given below:

PW = −P+A(P/A,i,n)

Here,

P is the initial cost of the alternative ($15000)

A is the uniform annual benefit ($1530)

i is the interest rate (6%)

n is the time period (20 years)

Substitute the values in above formula

PW =

= −$15000+$1530(P/A,6%,20)= −$15000+$1530(11.470)=−$15000+$17549.10=$2549.10

Thus, the present worth of the option B is $2549.10

Net Present Worth Analysis of option C

Formula used to calculate the present worth is given below:

PW = −P+A(P/A,i,n)

Here,

P is the initial cost of the alternative ($20000)

A is the uniform annual benefit ($1890)

i is the interest rate (6%)

n is the time period (20 years)

Substitute the values in above formula

PW =

=−$20000+$1890(P/A,6%,20)=−$20000+$21678.30=$1678.30

Thus, the present worth of the analysis C is $1678.30.

Conclusion:

Using the present worth analysis, the best alternative is alternative A as the present worth of alternative A is highest among three options.

Thus alternative A is the correct answer.

Answer 7

Chapter 5, Problem 69P

To determine

i.

Alternative to be selected if interest rate is 6%.

Answer 8

Expert Solution

Answer to Problem 69P

Alternative A is the correct answer.

Answer 9

Expert Solution

Answer 10

Expert Solution

Answer 11

Expert Solution

Answer 12

Explanation of Solution

Given:

Interest Rate is 6%

	A	B	C
Installed Cost	$10,000	$15,000	$20,000
Annual Benefit	1,625	1,530	1,890
Useful Life(yrs)	10	20	20

Concept used:

RATE OF RETURN: It is a return which usually an investor gets on speculation. Investment can be done on shares, bonds etc. If rate of return is calculated for a fiscal year, then it is termed as annual rate of return.

Calculation:

Net Present worth analysis of Option- A

Formula used to calculate the present worth is given below:

PW = −P+A(P/A,i,n)−F(P/F,i,n) ........(1)

Here,

P is the initial cost of the alternative ($10000)

A is the uniform annual benefit ($1625)

F₁is additional investment required in replacement ($10000) (in year- 10)

I is the interest rate (6%)

Substitute the values in above formula:

PW

= −$10000+$1625(P/A,6%,20)−$10000(P/F,6%,10)= −$10000+$1625(11.470)−$10000(0.5584)=−$10000+$18638.75−$5584=$3054.75

Thus, the present worth of the option A is $3054.75

Net present Worth Analysis of option B

Formula used to calculate the Present worth is given below:

PW = −P+A(P/A,i,n)

Here,

P is the initial cost of the alternative ($15000)

A is the uniform annual benefit ($1530)

i is the interest rate (6%)

n is the time period (20 years)

Substitute the values in above formula

PW =

= −$15000+$1530(P/A,6%,20)= −$15000+$1530(11.470)=−$15000+$17549.10=$2549.10

Thus, the present worth of the option B is $2549.10

Net Present Worth Analysis of option C

Formula used to calculate the present worth is given below:

PW = −P+A(P/A,i,n)

Here,

P is the initial cost of the alternative ($20000)

A is the uniform annual benefit ($1890)

i is the interest rate (6%)

n is the time period (20 years)

Substitute the values in above formula

PW =

=−$20000+$1890(P/A,6%,20)=−$20000+$21678.30=$1678.30

Thus, the present worth of the analysis C is $1678.30.

Conclusion:

Using the present worth analysis, the best alternative is alternative A as the present worth of alternative A is highest among three options.

Thus alternative A is the correct answer.

Answer 13

To determine

ii.

Best alternative is selected.

Expert Solution

Answer to Problem 69P

Alternative A is selected.

Explanation of Solution

Given:

Interest Rate is 3%.

Concept used:

RATE OF RETURN: It is a return which usually an investor gets on speculation. Investment can be done on shares, bonds etc. If rate of return is calculated for a fiscal year, then it is termed as annual rate of return.

Calculation:

Net Present worth analysis of Option- A

Formula used to calculate the present worth is given below:

PW = −P+A(P/A,i,n)−F(P/F,i,n) ........(1)

Here,

P is the initial cost of the alternative ($10000)

A is the uniform annual benefit ($1625)

F₁is additional investment required in replacement ($10000) (in year- 10)

I is the interest rate (6%)

Substitute the values in above formula:

PW

= −$10000+$1625(P/A,6%,20)−$10000(P/F,6%,10)= −$10000+$1625(11.470)−$10000(0.5584)=−$10000+$18638.75−$5584=$3054.75

Thus, the present worth of the option A is $3054.75

Net present Worth Analysis of option B

Formula used to calculate the Present worth is given below:

PW = −P+A(P/A,i,n)

Here,

P is the initial cost of the alternative ($15000)

A is the uniform annual benefit ($1530)

i is the interest rate (6%)

n is the time period (20 years)

Substitute the values in above formula

PW =

= −$15000+$1530(P/A,6%,20)= −$15000+$1530(11.470)=−$15000+$17549.10=$2549.10

Thus, the present worth of the option B is $2549.10

Net Present Worth Analysis of option C

Formula used to calculate the present worth is given below:

PW = −P+A(P/A,i,n)

Here,

P is the initial cost of the alternative ($20000)

A is the uniform annual benefit ($1890)

i is the interest rate (6%)

n is the time period (20 years)

Substitute the values in above formula

PW =

=−$20000+$1890(P/A,6%,20)=−$20000+$21678.30=$1678.30

Thus, the present worth of the analysis C is $1678.30.

Conclusion:

Alternative A is selected.

Answer 14

To determine

ii.

Best alternative is selected.

Answer 15

Expert Solution

Answer to Problem 69P

Alternative A is selected.

Answer 16

Expert Solution

Answer 17

Expert Solution

Answer 18

Expert Solution

Answer 19

Explanation of Solution

Given:

Interest Rate is 3%.

Concept used:

RATE OF RETURN: It is a return which usually an investor gets on speculation. Investment can be done on shares, bonds etc. If rate of return is calculated for a fiscal year, then it is termed as annual rate of return.

Calculation:

Net Present worth analysis of Option- A

Formula used to calculate the present worth is given below:

PW = −P+A(P/A,i,n)−F(P/F,i,n) ........(1)

Here,

P is the initial cost of the alternative ($10000)

A is the uniform annual benefit ($1625)

F₁is additional investment required in replacement ($10000) (in year- 10)

I is the interest rate (6%)

Substitute the values in above formula:

PW

= −$10000+$1625(P/A,6%,20)−$10000(P/F,6%,10)= −$10000+$1625(11.470)−$10000(0.5584)=−$10000+$18638.75−$5584=$3054.75

Thus, the present worth of the option A is $3054.75

Net present Worth Analysis of option B

Formula used to calculate the Present worth is given below:

PW = −P+A(P/A,i,n)

Here,

P is the initial cost of the alternative ($15000)

A is the uniform annual benefit ($1530)

i is the interest rate (6%)

n is the time period (20 years)

Substitute the values in above formula

PW =

= −$15000+$1530(P/A,6%,20)= −$15000+$1530(11.470)=−$15000+$17549.10=$2549.10

Thus, the present worth of the option B is $2549.10

Net Present Worth Analysis of option C

Formula used to calculate the present worth is given below:

PW = −P+A(P/A,i,n)

Here,

P is the initial cost of the alternative ($20000)

A is the uniform annual benefit ($1890)

i is the interest rate (6%)

n is the time period (20 years)

Substitute the values in above formula

PW =

=−$20000+$1890(P/A,6%,20)=−$20000+$21678.30=$1678.30

Thus, the present worth of the analysis C is $1678.30.

Conclusion:

Alternative A is selected.

Answer 20

Ch. 5 - Prob. 1QTC Ch. 5 - Prob. 2QTC Ch. 5 - Prob. 3QTC Ch. 5 - Prob. 1P Ch. 5 - Prob. 2P Ch. 5 - Prob. 3P Ch. 5 - Prob. 4P Ch. 5 - Prob. 5P Ch. 5 - Prob. 6P Ch. 5 - Prob. 7P

i. Alternative to be selected if interest rate is 6%.

Videos

i.

Alternative to be selected if interest rate is 6%.

Answer to Problem 69P

Explanation of Solution

ii.

Best alternative is selected.

Answer to Problem 69P

Explanation of Solution

Want to see more full solutions like this?

Chapter 5 Solutions

i. Alternative to be selected if interest rate is 6%.

Videos

i. Alternative to be selected if interest rate is 6%.

Answer to Problem 69P

Explanation of Solution

ii. Best alternative is selected.

Answer to Problem 69P

Explanation of Solution

Want to see more full solutions like this?

Chapter 5 Solutions

i.

Alternative to be selected if interest rate is 6%.

ii.

Best alternative is selected.