Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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NPV and ANPV decisions Personal Finance Problem Richard and Linda Butler decide that it is time to purchase ahigh-definition (HD) television because the technology has improved and prices have fallen over the past 3 years. From theirresearch, they narrow their choices to two sets, the Samsung 64-inch plasma with 1080p capability and the Sony 64-inch plasma with 1080p features. The price of the Samsung is
opportunity cost to be
$2,365
and the Sony will cost
$2,700.
They expect to keep the Samsung for 3 years; if they buy the more expensive Sony unit, they will keep the Sony for 4 years. They expect sell the Samsung for
$375
by the end of 3 years; they expect to sell the Sony for
$335
at the end of the year 4. Richard and Linda estimate that the end-of-year entertainment benefits (i.e., not going to movies or events and watching at home) from the Samsung to be
$890
and for the Sony to be
$1,015.
Both sets can be viewed as quality units and are equally risky purchases. They estimate their 9.5%.
The Butlers wish to choose the better alternative from a purely financial perspective. To perform this analysis they wish to do the following:a. Determine the NPV of the Samsung HD plasma TV.
b. Determine the ANPV of the Samsung HD plasma TV.
c. Determine the NPV of the Sony HD plasma TV.
d. Determine the ANPV of the Sony HD plasma TV.
e. Which set should the Butlers purchase and why?
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