Final Examination Fall 2017 NAME: Compare the following two choices using annual

Question

Final Examination Fall 2017 NAME: Compare the following two choices using annualized worth. pass single alternative and which is best based on annualized worth. 1-6% for first ten years and then 1-3% for last ten years. 1 Comment if they would (A) Initial Investment 400,000 Planning Horizon 20 years. Net Revenue stream starts at 500,000 and decreases by 10,000 each year. Salvage Value 20,000. . Net Revenue stream uniform at (B) Initial Investment 300,000 Planning Horizon 20 years 80,000. Salvage value is zero.

Explanation / Answer

A.

B.

Cash flows Ref Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Year 16 Year 17 Year 18 Year 19 Year 20 a Cash flow      (4,00,000.00)              5,00,000                      4,90,000          4,80,000          4,70,000          4,60,000          4,50,000          4,40,000          4,30,000          4,20,000          4,10,000          4,00,000          3,90,000          3,80,000          3,70,000          3,60,000          3,50,000          3,40,000          3,30,000          3,20,000          3,30,000 Present value factor@ 6% 0.943396226 0.88999644 0.839619283 0.792093663 0.747258173 0.70496054 0.665057114 0.627412371 0.591898464 0.558394777 0.526787525 0.496969364 0.468839022 0.442300964 0.417265061 0.393646284 0.371364419 0.350343791 0.33051301 0.311804727 Present value factor@ 3% 0.970873786 0.942595909 0.915141659 0.888487048 0.862608784 0.837484257 0.813091511 0.789409234 0.766416732 0.744093915 0.722421277 0.70137988 0.68095134 0.661117806 0.641861947 0.623166939 0.605016446 0.587394608 0.570286027 0.553675754 Present value factor used 0.943396226 0.88999644 0.839619283 0.792093663 0.747258173 0.70496054 0.665057114 0.627412371 0.591898464 0.558394777 0.722421277 0.70137988 0.68095134 0.661117806 0.641861947 0.623166939 0.605016446 0.587394608 0.570286027 0.553675754 e=c*d Present value of cashflows -4,00,000.00 4,71,698.11 4,36,098.26 4,03,017.26 3,72,284.02 3,43,738.76 3,17,232.24 2,92,625.13 2,69,787.32 2,48,597.35 2,28,941.86 2,88,968.51 2,73,538.15 2,58,761.51 2,44,613.59 2,31,070.30 2,18,108.43 2,05,705.59 1,93,840.22 1,82,491.53 1,82,713.00 A Total present value of cash inflows 52,63,831.14 B Total of annuity factor used 13.70735908 C=A/B Annual worth        3,84,014.97

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