?( Equivalent annual annuity ?) Rib? & Wings-R-Us is considering the purchase of
ID: 2615741 • Letter: #
Question
?(Equivalent annual annuity?) Rib? & Wings-R-Us is considering the purchase of a new smoker oven for cooking? barbecue, ribs, and wings. It is looking at two different ovens. The first is a relatively standard smoker and would cost $ 52,000 last for 9 ?years, and produce annual cash flows of $ 18,000 per year. The alternative is the? deluxe, award-winning? Smoke-alator, which costs $ 78,000 and, because of its patented humidity? control, produces the? "moistest, tastiest barbecue in the? world." The? Smoke-alator would last for 13 years and produce cash flows of $ 24,000 per year. Assuming a required rate of return of 11 percent on both? projects, compute their equivalent annual annuities (EAAs?).
Explanation / Answer
PV = 47,666.86, FV = 0, N = 9, rate = 11%
Use PMT function in Excel
EAA = 8,608.71
PV = 83,996.89, FV = 0, N = 13 , rate =11%
use PMT funciton in Excel
EAA = 12,444.22
so the second one is better
Discount rate 11.0000% Cash flows Year Discounted CF= cash flows/(1+rate)^year Cumulative cash flow (52,000.00) 0 (52,000.00) (52,000.00) 18,000.000 1 16,216.22 (35,783.78) 18,000.000 2 14,609.20 (21,174.58) 18,000.000 3 13,161.44 (8,013.14) 18,000.000 4 11,857.16 3,844.02 18,000.000 5 10,682.12 14,526.15 18,000.000 6 9,623.54 24,149.68 18,000.000 7 8,669.85 32,819.53 18,000.000 8 7,810.68 40,630.21 18,000.000 9 7,036.65 47,666.86Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.