Chapter 8, Problem 35P

(a)

To determine

To construct:A choice table for interest tables from 0% to 100%

Answer to Problem 35P

From table below, from 0% to 6%, Plan B should be preferred. Between 7% to 12% Plan C should be preferred. Beyond that Plan A should be selected

Explanation of Solution

NPV of Plan A $=-83,000-50,000+26,500(P/A,i,15)+50,000(P/F,i,15)$

NPV of Plan B $=-195,000-50,000+39,750(P/A,i,15)+50,000(P/F,i,15)$

NPV of Plan C $=-115,000-50,000+31,200(P/A,i,15)+50,000(P/F,i,15)$

Choice table for interest from 0% to 100%

Interest rate	(P/A,i,15)	(P/F,i,15)	Plan A	Plan B	Plan C
0%	15.00	1.00	314,500	401,250	353,000
1%	13.87	0.86	277,491	349,203	310,657
2%	12.85	0.74	244,656	302,909	273,048
3%	11.94	0.64	215,448	261,626	239,557
4%	11.12	0.56	189,400	224,719	209,657
5%	10.38	0.48	166,112	191,642	182,896
6%	9.71	0.42	145,238	161,925	158,885
7%	9.11	0.36	126,482	135,162	137,289
8%	8.56	0.32	109,588	111,001	117,818
9%	8.06	0.27	94,335	89,139	100,220
10%	7.61	0.24	80,531	69,311	84,279
11%	7.19	0.21	68,008	51,287	69,805
12%	6.81	0.18	56,623	34,867	56,634
13%	6.46	0.16	46,248	19,874	44,621
14%	6.14	0.14	36,772	6,156	33,640
15%	5.85	0.12	28,100	(6,422)	23,583
16%	5.58	0.11	20,146	(17,979)	14,351
17%	5.32	0.09	12,835	(28,619)	5,859
18%	5.09	0.08	6,103	(38,434)	(1,967)
19%	4.88	0.07	(110)	(47,505)	(9,194)
20%	4.68	0.06	(5,855)	(55,905)	(15,880)
21%	4.49	0.06	(11,176)	(63,697)	(22,078)
22%	4.32	0.05	(16,114)	(70,938)	(27,833)
23%	4.15	0.04	(20,705)	(77,678)	(33,186)
24%	4.00	0.04	(24,981)	(83,964)	(38,175)
25%	3.86	0.04	(28,970)	(89,835)	(42,832)
26%	3.73	0.03	(32,698)	(95,328)	(47,185)
27%	3.60	0.03	(36,187)	(100,474)	(51,262)
28%	3.48	0.02	(39,458)	(105,303)	(55,086)
29%	3.37	0.02	(42,528)	(109,841)	(58,677)
30%	3.27	0.02	(45,416)	(114,112)	(62,055)
31%	3.17	0.02	(48,134)	(118,137)	(65,237)
32%	3.08	0.02	(50,697)	(121,934)	(68,238)
33%	2.99	0.01	(53,117)	(125,523)	(71,073)
34%	2.90	0.01	(55,405)	(128,918)	(73,753)
35%	2.83	0.01	(57,571)	(132,134)	(76,291)
36%	2.75	0.01	(59,623)	(135,183)	(78,697)
37%	2.68	0.01	(61,571)	(138,078)	(80,981)
38%	2.61	0.01	(63,421)	(140,830)	(83,151)
39%	2.55	0.01	(65,180)	(143,449)	(85,215)
40%	2.48	0.01	(66,854)	(145,942)	(87,180)
41%	2.42	0.01	(68,450)	(148,320)	(89,053)
42%	2.37	0.01	(69,973)	(150,589)	(90,840)
43%	2.31	0.00	(71,426)	(152,757)	(92,547)
44%	2.26	0.00	(72,816)	(154,829)	(94,179)
45%	2.21	0.00	(74,145)	(156,812)	(95,740)
46%	2.17	0.00	(75,417)	(158,712)	(97,235)
47%	2.12	0.00	(76,637)	(160,532)	(98,668)
48%	2.08	0.00	(77,806)	(162,279)	(100,042)
49%	2.04	0.00	(78,929)	(163,956)	(101,361)
50%	2.00	0.00	(80,007)	(165,567)	(102,628)
51%	1.96	0.00	(81,043)	(167,117)	(103,847)
52%	1.92	0.00	(82,040)	(168,607)	(105,019)
53%	1.88	0.00	(83,000)	(170,042)	(106,147)
54%	1.85	0.00	(83,925)	(171,425)	(107,234)
55%	1.82	0.00	(84,816)	(172,758)	(108,282)
56%	1.78	0.00	(85,675)	(174,044)	(109,293)
57%	1.75	0.00	(86,505)	(175,286)	(110,269)
58%	1.72	0.00	(87,306)	(176,485)	(111,211)
59%	1.69	0.00	(88,080)	(177,644)	(112,121)
60%	1.67	0.00	(88,828)	(178,764)	(113,002)
61%	1.64	0.00	(89,552)	(179,848)	(113,853)
62%	1.61	0.00	(90,253)	(180,897)	(114,678)
63%	1.59	0.00	(90,931)	(181,913)	(115,476)
64%	1.56	0.00	(91,589)	(182,898)	(116,249)
65%	1.54	0.00	(92,226)	(183,852)	(116,999)
66%	1.51	0.00	(92,844)	(184,778)	(117,726)
67%	1.49	0.00	(93,443)	(185,676)	(118,431)
68%	1.47	0.00	(94,025)	(186,548)	(119,116)
69%	1.45	0.00	(94,590)	(187,394)	(119,781)
70%	1.43	0.00	(95,139)	(188,217)	(120,427)
71%	1.41	0.00	(95,672)	(189,016)	(121,054)
72%	1.39	0.00	(96,191)	(189,793)	(121,665)
73%	1.37	0.00	(96,695)	(190,549)	(122,258)
74%	1.35	0.00	(97,186)	(191,285)	(122,836)
75%	1.33	0.00	(97,663)	(192,001)	(123,398)
76%	1.32	0.00	(98,128)	(192,698)	(123,946)
77%	1.30	0.00	(98,581)	(193,377)	(124,479)
78%	1.28	0.00	(99,023)	(194,039)	(124,998)
79%	1.27	0.00	(99,453)	(194,684)	(125,505)
80%	1.25	0.00	(99,872)	(195,312)	(125,998)
81%	1.23	0.00	(100,282)	(195,926)	(126,480)
82%	1.22	0.00	(100,681)	(196,524)	(126,950)
83%	1.20	0.00	(101,070)	(197,108)	(127,408)
84%	1.19	0.00	(101,450)	(197,678)	(127,856)
85%	1.18	0.00	(101,822)	(198,235)	(128,293)
86%	1.16	0.00	(102,184)	(198,779)	(128,720)
87%	1.15	0.00	(102,539)	(199,310)	(129,137)
88%	1.14	0.00	(102,885)	(199,829)	(129,544)
89%	1.12	0.00	(103,223)	(200,337)	(129,943)
90%	1.11	0.00	(103,554)	(200,833)	(130,332)
91%	1.10	0.00	(103,878)	(201,318)	(130,713)
92%	1.09	0.00	(104,194)	(201,793)	(131,086)
93%	1.08	0.00	(104,504)	(202,258)	(131,451)
94%	1.06	0.00	(104,807)	(202,712)	(131,808)
95%	1.05	0.00	(105,104)	(203,158)	(132,157)
96%	1.04	0.00	(105,395)	(203,593)	(132,499)
97%	1.03	0.00	(105,680)	(204,020)	(132,834)
98%	1.02	0.00	(105,958)	(204,438)	(133,163)
99%	1.01	0.00	(106,232)	(204,848)	(133,484)
100%	1.00	0.00	(106,499)	(205,250)	(133,799)

(b)

To determine

To select:the best alternative at expected rate of return of 10%

Answer to Problem 35P

Best alternative at expected rate of return of 10%isPlan A having highest NPV of $84,279.

Explanation of Solution

As per the choice table above, at expected rate of return of 10% Plan C has highest NPV of $84,279 as compared to other plans; hence Plan C should be preferred.