i. Present Worth Alternative is being used.

Question

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Answer 1

Question

Chapter 5, Problem 72P

To determine

i.

Present Worth Alternative is being used.

Expert Solution

Answer to Problem 72P

Using Present Worth Method, Alternative 1 should be selected.

Explanation of Solution

Given:

Interest Rate = 8%.

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:

Alternative 1

Present Worth =

$500+$135(P/A,8%,10)−$500(P/F,8%,5)PW = −$500+($135×6.7101)−($500×0.6806)PW = −$500+$905.86−$340.3PW= $65.56

The Present worth of alternative 1 is $65.56

Alternative 2

Present Worth:

−$600+$100(P/A,8%,10)−[($600−$250)(P/F,8%,5)]+$250(P/F,8%,10)−$600+($100×6.7101)−[$350×0.6806]+($250×0.4632)−$600+$671.01−$238.21+$115.8−$51.4

The Present Worth of Alternative 2 is -$51.4

Alternative 3:

PW = −$700+$100(P/A,8%,10)+$180(P/F,8%,10)PW = −$700+$671.01+$83.37PW = $54.38

Alternative 4:

The Present worth of alternative 4 is $0

The Present worth of alternative 1 is numerically higher.

Conclusion:

So, using Present Worth Method, Alternative 1 should be selected.

To determine

ii.

Present Worth Alternative is being used.

Expert Solution

Answer to Problem 72P

Interest Rate is 12%.

Explanation of Solution

Given:

Interest Rate is 12%.

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:

Alternative 1

Present Worth =

PW = −$500+$135(P/A,12%,10)−$500(P/F,12%,5)PW = −$500+($135×5.6502)−($500×0.5674)PW = −$500+$762.77−$283.7PW = −$20.93

The Present worth of Alternative 1 is -$20.93

Alternative 2

PW = −$600+$100(P/A,12%,10)−[($600−$250)(P/F,12%5)]+$250(P/F,12%,10)PW = −$600+(100×5.6502)−$198.59+$80.5PW = −$153.07

The Present Worth of Alternative 2 is -$153.07

Alternative 3

PW = −$700+$100(P/A,12%,10)+$180(P/F,12%,10)PW = −$700+$565.02+$57.96PW = −$77.02

The Present Worth of Alternative 3 is -$77.02

Alternative 4

The Present Worth of Alternative 4 is $0.

Conclusion:

The Present Worth of Alternative 4 is numerically higher.

So, using Present Worth Method, Alternative 4 should be selected.

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Answer 2

Question

Chapter 5, Problem 72P

To determine

i.

Present Worth Alternative is being used.

Expert Solution

Answer to Problem 72P

Using Present Worth Method, Alternative 1 should be selected.

Explanation of Solution

Given:

Interest Rate = 8%.

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:

Alternative 1

Present Worth =

$500+$135(P/A,8%,10)−$500(P/F,8%,5)PW = −$500+($135×6.7101)−($500×0.6806)PW = −$500+$905.86−$340.3PW= $65.56

The Present worth of alternative 1 is $65.56

Alternative 2

Present Worth:

−$600+$100(P/A,8%,10)−[($600−$250)(P/F,8%,5)]+$250(P/F,8%,10)−$600+($100×6.7101)−[$350×0.6806]+($250×0.4632)−$600+$671.01−$238.21+$115.8−$51.4

The Present Worth of Alternative 2 is -$51.4

Alternative 3:

PW = −$700+$100(P/A,8%,10)+$180(P/F,8%,10)PW = −$700+$671.01+$83.37PW = $54.38

Alternative 4:

The Present worth of alternative 4 is $0

The Present worth of alternative 1 is numerically higher.

Conclusion:

So, using Present Worth Method, Alternative 1 should be selected.

To determine

ii.

Present Worth Alternative is being used.

Expert Solution

Answer to Problem 72P

Interest Rate is 12%.

Explanation of Solution

Given:

Interest Rate is 12%.

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:

Alternative 1

Present Worth =

PW = −$500+$135(P/A,12%,10)−$500(P/F,12%,5)PW = −$500+($135×5.6502)−($500×0.5674)PW = −$500+$762.77−$283.7PW = −$20.93

The Present worth of Alternative 1 is -$20.93

Alternative 2

PW = −$600+$100(P/A,12%,10)−[($600−$250)(P/F,12%5)]+$250(P/F,12%,10)PW = −$600+(100×5.6502)−$198.59+$80.5PW = −$153.07

The Present Worth of Alternative 2 is -$153.07

Alternative 3

PW = −$700+$100(P/A,12%,10)+$180(P/F,12%,10)PW = −$700+$565.02+$57.96PW = −$77.02

The Present Worth of Alternative 3 is -$77.02

Alternative 4

The Present Worth of Alternative 4 is $0.

Conclusion:

The Present Worth of Alternative 4 is numerically higher.

So, using Present Worth Method, Alternative 4 should be selected.

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Answer 3

Question

Chapter 5, Problem 72P

To determine

i.

Present Worth Alternative is being used.

Expert Solution

Answer to Problem 72P

Using Present Worth Method, Alternative 1 should be selected.

Explanation of Solution

Given:

Interest Rate = 8%.

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:

Alternative 1

Present Worth =

$500+$135(P/A,8%,10)−$500(P/F,8%,5)PW = −$500+($135×6.7101)−($500×0.6806)PW = −$500+$905.86−$340.3PW= $65.56

The Present worth of alternative 1 is $65.56

Alternative 2

Present Worth:

−$600+$100(P/A,8%,10)−[($600−$250)(P/F,8%,5)]+$250(P/F,8%,10)−$600+($100×6.7101)−[$350×0.6806]+($250×0.4632)−$600+$671.01−$238.21+$115.8−$51.4

The Present Worth of Alternative 2 is -$51.4

Alternative 3:

PW = −$700+$100(P/A,8%,10)+$180(P/F,8%,10)PW = −$700+$671.01+$83.37PW = $54.38

Alternative 4:

The Present worth of alternative 4 is $0

The Present worth of alternative 1 is numerically higher.

Conclusion:

So, using Present Worth Method, Alternative 1 should be selected.

To determine

ii.

Present Worth Alternative is being used.

Expert Solution

Answer to Problem 72P

Interest Rate is 12%.

Explanation of Solution

Given:

Interest Rate is 12%.

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:

Alternative 1

Present Worth =

PW = −$500+$135(P/A,12%,10)−$500(P/F,12%,5)PW = −$500+($135×5.6502)−($500×0.5674)PW = −$500+$762.77−$283.7PW = −$20.93

The Present worth of Alternative 1 is -$20.93

Alternative 2

PW = −$600+$100(P/A,12%,10)−[($600−$250)(P/F,12%5)]+$250(P/F,12%,10)PW = −$600+(100×5.6502)−$198.59+$80.5PW = −$153.07

The Present Worth of Alternative 2 is -$153.07

Alternative 3

PW = −$700+$100(P/A,12%,10)+$180(P/F,12%,10)PW = −$700+$565.02+$57.96PW = −$77.02

The Present Worth of Alternative 3 is -$77.02

Alternative 4

The Present Worth of Alternative 4 is $0.

Conclusion:

The Present Worth of Alternative 4 is numerically higher.

So, using Present Worth Method, Alternative 4 should be selected.

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Answer 4

Question

Chapter 5, Problem 72P

To determine

i.

Present Worth Alternative is being used.

Expert Solution

Answer to Problem 72P

Using Present Worth Method, Alternative 1 should be selected.

Explanation of Solution

Given:

Interest Rate = 8%.

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:

Alternative 1

Present Worth =

$500+$135(P/A,8%,10)−$500(P/F,8%,5)PW = −$500+($135×6.7101)−($500×0.6806)PW = −$500+$905.86−$340.3PW= $65.56

The Present worth of alternative 1 is $65.56

Alternative 2

Present Worth:

−$600+$100(P/A,8%,10)−[($600−$250)(P/F,8%,5)]+$250(P/F,8%,10)−$600+($100×6.7101)−[$350×0.6806]+($250×0.4632)−$600+$671.01−$238.21+$115.8−$51.4

The Present Worth of Alternative 2 is -$51.4

Alternative 3:

PW = −$700+$100(P/A,8%,10)+$180(P/F,8%,10)PW = −$700+$671.01+$83.37PW = $54.38

Alternative 4:

The Present worth of alternative 4 is $0

The Present worth of alternative 1 is numerically higher.

Conclusion:

So, using Present Worth Method, Alternative 1 should be selected.

To determine

ii.

Present Worth Alternative is being used.

Expert Solution

Answer to Problem 72P

Interest Rate is 12%.

Explanation of Solution

Given:

Interest Rate is 12%.

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:

Alternative 1

Present Worth =

PW = −$500+$135(P/A,12%,10)−$500(P/F,12%,5)PW = −$500+($135×5.6502)−($500×0.5674)PW = −$500+$762.77−$283.7PW = −$20.93

The Present worth of Alternative 1 is -$20.93

Alternative 2

PW = −$600+$100(P/A,12%,10)−[($600−$250)(P/F,12%5)]+$250(P/F,12%,10)PW = −$600+(100×5.6502)−$198.59+$80.5PW = −$153.07

The Present Worth of Alternative 2 is -$153.07

Alternative 3

PW = −$700+$100(P/A,12%,10)+$180(P/F,12%,10)PW = −$700+$565.02+$57.96PW = −$77.02

The Present Worth of Alternative 3 is -$77.02

Alternative 4

The Present Worth of Alternative 4 is $0.

Conclusion:

The Present Worth of Alternative 4 is numerically higher.

So, using Present Worth Method, Alternative 4 should be selected.

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Answer 5

Chapter 5, Problem 72P

To determine

i.

Present Worth Alternative is being used.

Expert Solution

Answer to Problem 72P

Using Present Worth Method, Alternative 1 should be selected.

Explanation of Solution

Given:

Interest Rate = 8%.

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:

Alternative 1

Present Worth =

$500+$135(P/A,8%,10)−$500(P/F,8%,5)PW = −$500+($135×6.7101)−($500×0.6806)PW = −$500+$905.86−$340.3PW= $65.56

The Present worth of alternative 1 is $65.56

Alternative 2

Present Worth:

−$600+$100(P/A,8%,10)−[($600−$250)(P/F,8%,5)]+$250(P/F,8%,10)−$600+($100×6.7101)−[$350×0.6806]+($250×0.4632)−$600+$671.01−$238.21+$115.8−$51.4

The Present Worth of Alternative 2 is -$51.4

Alternative 3:

PW = −$700+$100(P/A,8%,10)+$180(P/F,8%,10)PW = −$700+$671.01+$83.37PW = $54.38

Alternative 4:

The Present worth of alternative 4 is $0

The Present worth of alternative 1 is numerically higher.

Conclusion:

So, using Present Worth Method, Alternative 1 should be selected.

To determine

ii.

Present Worth Alternative is being used.

Expert Solution

Answer to Problem 72P

Interest Rate is 12%.

Explanation of Solution

Given:

Interest Rate is 12%.

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:

Alternative 1

Present Worth =

PW = −$500+$135(P/A,12%,10)−$500(P/F,12%,5)PW = −$500+($135×5.6502)−($500×0.5674)PW = −$500+$762.77−$283.7PW = −$20.93

The Present worth of Alternative 1 is -$20.93

Alternative 2

PW = −$600+$100(P/A,12%,10)−[($600−$250)(P/F,12%5)]+$250(P/F,12%,10)PW = −$600+(100×5.6502)−$198.59+$80.5PW = −$153.07

The Present Worth of Alternative 2 is -$153.07

Alternative 3

PW = −$700+$100(P/A,12%,10)+$180(P/F,12%,10)PW = −$700+$565.02+$57.96PW = −$77.02

The Present Worth of Alternative 3 is -$77.02

Alternative 4

The Present Worth of Alternative 4 is $0.

Conclusion:

The Present Worth of Alternative 4 is numerically higher.

So, using Present Worth Method, Alternative 4 should be selected.

Answer 6

Chapter 5, Problem 72P

To determine

i.

Present Worth Alternative is being used.

Expert Solution

Answer to Problem 72P

Using Present Worth Method, Alternative 1 should be selected.

Explanation of Solution

Given:

Interest Rate = 8%.

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:

Alternative 1

Present Worth =

$500+$135(P/A,8%,10)−$500(P/F,8%,5)PW = −$500+($135×6.7101)−($500×0.6806)PW = −$500+$905.86−$340.3PW= $65.56

The Present worth of alternative 1 is $65.56

Alternative 2

Present Worth:

−$600+$100(P/A,8%,10)−[($600−$250)(P/F,8%,5)]+$250(P/F,8%,10)−$600+($100×6.7101)−[$350×0.6806]+($250×0.4632)−$600+$671.01−$238.21+$115.8−$51.4

The Present Worth of Alternative 2 is -$51.4

Alternative 3:

PW = −$700+$100(P/A,8%,10)+$180(P/F,8%,10)PW = −$700+$671.01+$83.37PW = $54.38

Alternative 4:

The Present worth of alternative 4 is $0

The Present worth of alternative 1 is numerically higher.

Conclusion:

So, using Present Worth Method, Alternative 1 should be selected.

Answer 7

Chapter 5, Problem 72P

To determine

i.

Present Worth Alternative is being used.

Answer 8

Expert Solution

Answer to Problem 72P

Using Present Worth Method, Alternative 1 should be selected.

Answer 9

Expert Solution

Answer 10

Expert Solution

Answer 11

Expert Solution

Answer 12

Explanation of Solution

Given:

Interest Rate = 8%.

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:

Alternative 1

Present Worth =

$500+$135(P/A,8%,10)−$500(P/F,8%,5)PW = −$500+($135×6.7101)−($500×0.6806)PW = −$500+$905.86−$340.3PW= $65.56

The Present worth of alternative 1 is $65.56

Alternative 2

Present Worth:

−$600+$100(P/A,8%,10)−[($600−$250)(P/F,8%,5)]+$250(P/F,8%,10)−$600+($100×6.7101)−[$350×0.6806]+($250×0.4632)−$600+$671.01−$238.21+$115.8−$51.4

The Present Worth of Alternative 2 is -$51.4

Alternative 3:

PW = −$700+$100(P/A,8%,10)+$180(P/F,8%,10)PW = −$700+$671.01+$83.37PW = $54.38

Alternative 4:

The Present worth of alternative 4 is $0

The Present worth of alternative 1 is numerically higher.

Conclusion:

So, using Present Worth Method, Alternative 1 should be selected.

Answer 13

To determine

ii.

Present Worth Alternative is being used.

Expert Solution

Answer to Problem 72P

Interest Rate is 12%.

Explanation of Solution

Given:

Interest Rate is 12%.

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:

Alternative 1

Present Worth =

PW = −$500+$135(P/A,12%,10)−$500(P/F,12%,5)PW = −$500+($135×5.6502)−($500×0.5674)PW = −$500+$762.77−$283.7PW = −$20.93

The Present worth of Alternative 1 is -$20.93

Alternative 2

PW = −$600+$100(P/A,12%,10)−[($600−$250)(P/F,12%5)]+$250(P/F,12%,10)PW = −$600+(100×5.6502)−$198.59+$80.5PW = −$153.07

The Present Worth of Alternative 2 is -$153.07

Alternative 3

PW = −$700+$100(P/A,12%,10)+$180(P/F,12%,10)PW = −$700+$565.02+$57.96PW = −$77.02

The Present Worth of Alternative 3 is -$77.02

Alternative 4

The Present Worth of Alternative 4 is $0.

Conclusion:

The Present Worth of Alternative 4 is numerically higher.

So, using Present Worth Method, Alternative 4 should be selected.

Answer 14

To determine

ii.

Present Worth Alternative is being used.

Answer 15

Expert Solution

Answer to Problem 72P

Interest Rate is 12%.

Answer 16

Expert Solution

Answer 17

Expert Solution

Answer 18

Expert Solution

Answer 19

Explanation of Solution

Given:

Interest Rate is 12%.

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:

Alternative 1

Present Worth =

PW = −$500+$135(P/A,12%,10)−$500(P/F,12%,5)PW = −$500+($135×5.6502)−($500×0.5674)PW = −$500+$762.77−$283.7PW = −$20.93