plz 9.18 and 9.20 strict conclusion is that the curreil ation of the irreducible
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plz 9.18 and 9.20
strict conclusion is that the curreil ation of the irreducibles (c.R.. improved output quai conssdera make system B more attractive 9.17 llustrate th rate the reinvestment fallacy by supposing that, in Problem 9.15, ther system 2 could be rein vested at 40% in years 3 through 5 At the end of five years, the net future worth of system t $5000002.0114) $22 00067424) $47 762.80 iagram) and the net future worth of system 2 is (draw a time d , 40%, 4) Fw,-.. $75000(/72 ". 15%, 5) + $24D00(F)P, 15%, l )(F7P. 40%, 3) + s24 000(F7A 0114) 24 0001 15%2.7440)+ $24 000C7.1040) The efect of the reinvestment is to reverse the conclusion of Problem 9 STow, 'yuem a' ihe $95 375.40 better, Supplementary Problems 9.18) The executives of the XxYZ Company are considering the three independent proposals whose cash lows are given in Table 9.12. The MAR Ris l0%. Evaluate these three proposals by the NPV mehod Table 9-12 End of Year Proposal A Proposal B Proposal C $80 000 64610 2 45 000 64615028021.60 45 000 16461.50 28.021.6045 000 16461.50 28021.60 45000 $150000 Ans. NPVA-S21 80.87, NPVB-S8824.93. NPVc=-57355.69; proposal c is unacceptable. 9.19 Rework Problem 9.18 for MARR s 15%, An NPV s 53003.40, NPVs =0, NPYe-S21 527.68; proposals A and C are unacceptable and proposal B is barely acceptable 9.20 Evaluate the three proposals in Problem 9.18 using the ROR method and linear interpolation Ans. i:-12%, i s 15%, i&s; 7.71%; since icExplanation / Answer
9.18
The cash flows of different years are same.Hence Present Value of Cash FLows can be calculated by Annuity method
Cash flows needs to be multiplied by present value annuity factor of 10% for 4 years
Calculation of present value annuity factor:
NPV of Proposal A = ( 16461.50 * 3.169 ) - 50000 = $ 2,166.49
NPV of Proposal B = ( 28021.60 * 3.169 ) - 80000 = $ 8,800.45
NPV of Proposal C = ( 45000 * 3.169 ) - 150000 = - $ 7395
SInce the NPV of proposal C is negative, it is unacceptable
9.20
ROR is the rate of return at which the NPV of a project is Zero
Proposal A
As calculated above, NPV @ 10% = 2166.49
NPV @ 13% = - 1043.50
Using linear interpolation, IRR = Start rate + (NPV at start rate / (NPV at start rate - NPV at end rate)) * difference between rate
= 10 + (2166.49 / (2166.49 - 1043.50)) * (13-10) = 12%
Same ways, IRR for proposal B = 15% and proposal C = 7.71%
As IRR of proposal C is below MARR, it is unacceptable
Year Calculation Present Value Factor 1 1 / 1.10 0.909 2 1/ 1.102 0.826 3 1 / 1.103 0.751 4 1 / 1.104 0.683 TOTAL 3.169Related Questions
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