5. There are two options for an investment project: the initial investment of th

Question

5. There are two options for an investment project: the initial investment of the scheme A is 10,000,000 yuan, the residual value at the end of 6th is 4,000,000 yuan, the annual income is 9,000,000yuan, the operation cost is 5,000,000 yuan per year. The initial investment of the scheme B is 8,000,000 yuan, the residual value at the end of 6th is 3,000,000 yuan, and the annual income is 8,500,000yuan, its operating cost is 5,500,000 yuan per year. If the benchmark investment yield is 10%. Please select the better scheme by using net present value method

Explanation / Answer

Scheme-A Year Cash flows PVf @10% Present value 0 -10,000,000 1 -10000000 1 4,000,000 0.909091 3636364 2 4,000,000 0.826446 3305785 3 4,000,000 0.751315 3005259 4 4,000,000 0.683013 2732054 5 4,000,000 0.620921 2483685 6 8,000,000 0.564474 4515791 Present worth 9678939 Scheme-B Year Cash flows PVf @10% Present value 0 -8,000,000 1 -8000000 1 3,000,000 0.909091 2727273 2 3,000,000 0.826446 2479339 3 3,000,000 0.751315 2253944 4 3,000,000 0.683013 2049040 5 3,000,000 0.620921 1862764 6 6,000,000 0.564474 3386844 Present worth 6759204 Scheme A is better

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