A stem cell research project requires expensive specialized laboratory equipment

Question

A stem cell research project requires expensive specialized laboratory equipment. For this
purpose, three pieces of equipment and their associated cash flows (listed below) are under
consideration. One piece of equipment must be selected, and the laboratory

Explanation / Answer

MARR =15 % annum pv of all the projects A =136500+12500(0.85+085^2....+0.85^4)+15000(0.85^5) =177013 B=84000+31500(0.85+085^2....+0.85^4)+31500(0.85^5)=183298.6 C=126000+15500(0.85+085^2....+0.85^4+0.85^5)=174825 a>according to the present value B is preferred b>let the rate =r 84000+31500(1-r+(1-r)^2 ......(1-r)^5)+31500(0.85^5)=126000+15500(1-r+(1-r)^2 ......(1-r)^5) from solving the equation r = 0.2 hence the rate =20% so the ans were a> B lab C>r =20% cheers :)

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