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

Question

Want to see more full solutions like this?

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.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

1. Imagine a society that produces military goods and consumer goods, which we'll call "guns" and "butter." a. Draw a production possibilities frontier for guns and butter. Using the concept of opportunity cost, explain why it most likely has a bowed-out shape. b. Show a point that is impossible for the economy to achieve. Show a point that is feasible but inefficient. c. Imagine that the society has two political parties, called the Hawks (who want a strong military) and the Doves (who want a smaller military). Show a point on your production possibilities frontier that the Hawks might choose and a point the Doves might choose. d. Imagine that an aggressive neighboring country reduces the size of its military. As a result, both the Hawks and the Doves reduce their desired production of guns by the same amount. Which party would get the bigger "peace dividend," measured by the increase in butter production? Explain.

A health study tracked a group of persons for five years. At the beginning of the study, 20%were classified as heavy smokers, 30% as light smokers, and 50% as nonsmokers. Resultsof the study showed that light smokers were twice as likely as nonsmokers to die duringthe five-year study, but only half as likely as heavy smokers.A randomly selected participant from the study died during the five-year period. Calculatethe probability that the participant was a heavy smoker

Consider two assets with the following returns: State Prob. of state R₁ R2 1 23 13 25% 5% 2 -10% 1% Compute the optimal portfolio for an investor having a Bernoulli utility of net returns u(r) = 2√√r+ 10. Compute the certainty equivalent of the optimal portfolio. Do the results change if short-selling is not allowed? If so, how?

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.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

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.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

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.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

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.