SHOWS STEPS FOR HOW TO DO THIS IN A CALUCLTOR LIKE TI-83 or HP or equivalent Wal
ID: 2666502 • Letter: S
Question
SHOWS STEPS FOR HOW TO DO THIS IN A CALUCLTOR LIKE TI-83 or HP or equivalent
Walt wallace construction Enterprises is investigation the purchase of a new dump truck. Interest is 9. The cash flows for two likely models are as follows:
Explanation / Answer
a) Model A Net annual income, a = 9000-2000 = 7000 ($) First cost, F = 50000 ($) Life, n = 10 years Salvage value, S = 10000 ($) Interest rate, k = 9% = 0.09, ( so (1+k) = 1.09 ) So, NPV of A = - F + a((1+k)^10-1)/(k(1+k)^10) + S/(1+k)^10 => = - 50000 + 7000(1.09^10-1)/(0.09*1.09^10) + 10000/1.09^10 => = 852.29 ($) Model B Net annual income, a = 12000-1000 = 11000 ($) First cost, F = 80000 ($) Life, n = 10 years Salvage value, S = 30000 ($) Interest rate, k = 9% = 0.09, ( so (1+k) = 1.09 ) So, NPV of B = - F + a((1+k)^10-1)/(k(1+k)^10) + S/(1+k)^10 => = - 80000 + 11000(1.09^10-1)/(0.09*1.09^10) + 30000/1.09^10 => = 3266.56 ($) Hence B has better NPV and to be selected. (ANSWER) b) Now B is not available and NPV of A is positive, so, Model A can be purchased. (ANSWER)
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