Consider two mutually exclusive alternative. Construction a choice table using PW for interest rate from 0% to 20%. If the minimum attractive rate of return is 8%, which alternative should be selected? Alternative A B Fist cost $2,000 $3,000 Uniform annual benefit $450 $600 Salvage Value $200 700 Useful life 6 years 6 years Hint: Equation: PW_A = 450(P/A, i, 6) + 200(P/F, i, 6) – 2000 PW_B = 600(P/A, i, 6) + 700(P/F, i, 6) – 3000 or Spreadsheet: PW_A = -PV(i, nper, pmt, fv) – 2000 = -PV(i, 6, 450, 200) - 2000 PW_B = -PV(i, nper, pmt, fv) – 3000 = -PV(i, 6, 600, 700) - 3000
Consider two mutually exclusive alternative. Construction a choice table using PW for interest rate from 0% to 20%. If the minimum attractive rate of return is 8%, which alternative should be selected? Alternative A B Fist cost $2,000 $3,000 Uniform annual benefit $450 $600 Salvage Value $200 700 Useful life 6 years 6 years Hint: Equation: PW_A = 450(P/A, i, 6) + 200(P/F, i, 6) – 2000 PW_B = 600(P/A, i, 6) + 700(P/F, i, 6) – 3000 or Spreadsheet: PW_A = -PV(i, nper, pmt, fv) – 2000 = -PV(i, 6, 450, 200) - 2000 PW_B = -PV(i, nper, pmt, fv) – 3000 = -PV(i, 6, 600, 700) - 3000
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 9EB: If you invest $15,000 today, how much will you have in (for further instructions on future value in...
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Consider two mutually exclusive alternative. Construction a choice table using PW for interest rate from 0% to 20%. If the minimum attractive
Alternative |
A |
B |
Fist cost |
$2,000 |
$3,000 |
Uniform annual benefit |
$450 |
$600 |
Salvage Value |
$200 |
700 |
Useful life |
6 years |
6 years |
Hint:
Equation: PW_A = 450(P/A, i, 6) + 200(P/F, i, 6) – 2000
PW_B = 600(P/A, i, 6) + 700(P/F, i, 6) – 3000
or Spreadsheet:
PW_A = -PV(i, nper, pmt, fv) – 2000 = -PV(i, 6, 450, 200) - 2000
PW_B = -PV(i, nper, pmt, fv) – 3000 = -PV(i, 6, 600, 700) - 3000
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