An investor has two alternatives A and B. Also the other opportunities exist at
ID: 2738207 • Letter: A
Question
An investor has two alternatives A and B. Also the other opportunities exist at 12% minimum rate return. The total money available for investment is 80,000 and cash flow for alternative A and B are displayed in following tables:
Project A:
Project B:
C: Cost, I:Income, L:Salvage
Using ROR and NPV analysis, which investment is economically better? Please include the incremental analysis and show all your work.
C=$20,000 I=$10,000 I=$10,000 I=$10,000 I=$10,000 I=$10,000 I=$10,000 L=$16,000 A) 0 1 2 3 4 5 6Explanation / Answer
Calculation of NPV(Product A) Year Cash flow PVAF 12% Net cash flow 0 -20000 1 -20000 1 10000 0.8929 8928.571 2 10000 0.7972 7971.939 3 10000 0.7118 7117.802 4 10000 0.6355 6355.181 5 10000 0.5674 5674.269 6 10000 0.5066 5066.311 6 16000 0.5066 8106.096 NPV 29220.17 Calculation of NPV(Product B) Year Cash flow PVAF 12% Net cash flow 0 -80000 1 -80000 1 24000 0.8929 21428.57 2 24000 0.7972 19132.65 3 24000 0.7118 17082.73 4 24000 0.6355 15252.43 5 24000 0.5674 13618.24 6 24000 0.5066 12159.15 6 60000 0.5066 30397.86 NPV 49071.64 Project A is better then B
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.