0Periods (n)12314567891011121314151617181920Period123456789101112131415161718192024361% 2% 3%Interest rates (r)18.5994%0.990 0.980 0.971 0.962 0.952 0.943 0.93520.0245% 6% 7%8% 9% 10%4.623 4.4864.3551.970 1.942 1.913 1.886 1.859 1.833 1.8082.941 2.884 2.829 2.775 2.723 2.673 2.6243.902 3.808 3.717 3.630 3.546 3.465 3.3874.853 4.713 4.580 4.452 4.329 4.212 4.1005.795 5.601 5.417 5.242 5.076 4.917 4.7676.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.8687.652 7.325 7.020 6.733 6.463 6.210 5.971 5.7475.535 5.3358.566 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.9955.7599.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.14510.368 9.787 9.253 8.760 8.306 7.887 7.49911.255 10.575 9.954 9.385 8.863 8.384 7.94312.134 11.348 10.635 9.986 9.394 8.853 8.35813.004 12.106 11.296 10.563 9.899 9.295 8.74513.865 12.849 11.938 11.118 10.380 9.712 9.10814.718 13.578 12.561 11.652 10.838 10.106 9.44715.562 14.292 13.166 12.166 11.274 10.477 9.763 9.122 8.544 8.02216.398 14.992 13.754 12.659 11.690 10.828 10.059 9.372 8.756 8.20117.226 15.679 14.324 13.134 12.085 11.158 10.336 9.604 8.950 8.36518.046 16.351 14.878 13.590 12.462 11.470 10.594 9.818 9.1298.5148.851 8.313 7.824Present Value of a Periodic Payment (Annuity)9%7% 8%1.0700 1.0800 1.090010%1.10002.0700 2.0800 2.0900 2.10005.1010 5.2040 5.30916.1520 6.3081 6.46847.2135 7.4343 7.66258.2857 8.5830 8.89239.487211.4369.3685 9.7546 10.15912.488 13.02113.57914.487 15.19315.9371%2% 3%4%5% 6%1.0000 1.0200 1.0300 1.0400 1.0500 1.06002.0100 2.0200 2.0300 2.0400 2.0500 2.06003.0301 3.0604 3.0909 3.1216 3.1525 3.1836 3.2149 3.2464 3.2781 3.31004.0604 4.1216 4.1836 4.2465 4.3101 4.3746 4.4399 4.5061 4.57314.64105.4163 5.5256 5.6371 5.7507 5.8666 5.9847 6.10516.6330 6.8019 6.9753 7.1533 7.3359 7.5233 7.71567.8983 8.1420 8.3938 8.6540 8.9228 9.20049.2142 9.5491 9.8975 10.260 10.637 11.02810.583 11.027 11.491 11.97810.462 10.950 11.464 12.006 12.578 13.181 13.81611.567 12.169 12.808 13.486 14.207 14.972 15.784 16.645 17.560 18.53112.683 13.412 14.192 15.026 15.917 16.870 17.888 18.977 20.141 21.38413.809 14.680 15.618 16.627 17.713 18.882 20.141 21.495 22.953 24.52314.947 15.974 17.086 18.292 19.599 21.015 22.550 24.215 26.019 27.97516.097 17.29321.579 23.276 25.129 27.152 29.36117.258 18.639 20.157 21.825 23.65725.673 27.888 30.324 33.00318.430 20.012 21.762 23.698 25.84019.615 21.412 23.414 25.645 28.13220.811 22.841 25.117 27.671 30.53922.019 24.297 26.870 29.778 33.06626.973 30.422 34.42639.083 44.50263.276 77.598 95.83631.77235.95040.54528.213 30.840 33.750 36.97430.906 33.999 37.450 41.301 45.59933.760 37.379 41.446 46.018 51.15936.786 40.995 45.762 51.160 57.27550.816 58.177 66.765 76.790 88.497119.121 148.913 187.102 236.125 299.12743.077 51.994Future Value of an Annuity0.926 0.917 0.9091.783 1.759 1.7362.577 2.531 2.4873.312 3.240 3.1703.993 3.890 3.7917.139 6.805 6.4957.536 7.161 6.8147.904 7.487 7.1038.244 7.786 7.3678.559 8.061 7.606 1112345Periods6789101112131415161718Tom has decided he wants to use some of hisexcess cash to invest in either a new piece of equipment orinitiate an advertising "blitz." Use the followinginformation and the tables below to determine the netpresent value of each option.1920New Equipment Option:New equipment cost: $1,000Old equipment sale: $200Annual savings on utilities: $300 per yearAdvertising Blitz Option:Cost of advertising "blitz.": $500 per yearAnnual increase in sales due to ads: $650 per yearHe is using a 5-year horizon for his decision and a 3% rateof interest.Which option would you recommend and why?PRESENT VALUE TABLEPresent Value of a Lump Sum Payment (Compound Interest)Interest rates (r)1% 2% 3% 4% 5% 6% 7% 8% 9% 10%0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.9090.980 0.961 0.943 0.925 0.907 0.890 0.873 0.857 0.842 0.8260.971 0.942 0.915 0.889 0.864 0.840 0.816 0.794 0.772 0.7510.961 0.924 0.888 0.855 0.823 0.792 0.763 0.735 0.708 0.6830.951 0.906 0.863 0.822 0.784 0.747 0.713 0.681 0.650 0.6210.942 0.888 0.837 0.790 0.746 0705 0.666 0.630 0.596 0.5640.933 0.871 0.813 0.760 0.711 0.665 0.623 0.583 0.547 0.5130.923 0.853 0.789 0.731 0.677 0.627 0.582 0.540 0.502 0.4670.914 0.837 0.766 0.703 0.6450.592 0.544 0.500 0.460 0.4240.905 0.820 0.744 0.676 0.614 0.558 0.508 0.463 0.422 0.3860.896 0.8040.722 0.650 0.585 0.527 0.475 0.429 0.388 0.3500.887 0.788 0.701 0.625 0.557 0.497 0.444 0.397 0.356 0.3190.879 0.773 0.681 0.601 0.530 0.469 0.415 0.368 0.326 0.2900.870 0.758 0.661 0.577 0.505 0.442 0.388 0.340 0.299 0.2630.861 0.743 0.642 0.555 0.481 0.417 0.362 0.315 0.275 0.2390.853 0.728 0.623 0.534 0.458 0.394 0.339 0.292 0.252 0.2180.844 0.714 0.605 0.513 0.436 0.371 0.317 0.270 0.231 0.1980.836 0.700 0.587 0.494 0.416 0.350 0.296 0.250 0.212 0.1800.828 0.686 0.570 0.475 0.396 0.331 0.277 0.232 0.194 0.1640.8200.6730.5540.456 0.377 0.3120.258 0.215 0.178 0.149

Question

0Periods (n)12314567891011121314151617181920Period123456789101112131415161718192024361% 2% 3%Interest rates (r)18.5994%0.990 0.980 0.971 0.962 0.952 0.943 0.93520.0245% 6% 7%8% 9% 10%4.623 4.4864.3551.970 1.942 1.913 1.886 1.859 1.833 1.8082.941 2.884 2.829 2.775 2.723 2.673 2.6243.902 3.808 3.717 3.630 3.546 3.465 3.3874.853 4.713 4.580 4.452 4.329 4.212 4.1005.795 5.601 5.417 5.242 5.076 4.917 4.7676.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.8687.652 7.325 7.020 6.733 6.463 6.210 5.971 5.7475.535 5.3358.566 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.9955.7599.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.14510.368 9.787 9.253 8.760 8.306 7.887 7.49911.255 10.575 9.954 9.385 8.863 8.384 7.94312.134 11.348 10.635 9.986 9.394 8.853 8.35813.004 12.106 11.296 10.563 9.899 9.295 8.74513.865 12.849 11.938 11.118 10.380 9.712 9.10814.718 13.578 12.561 11.652 10.838 10.106 9.44715.562 14.292 13.166 12.166 11.274 10.477 9.763 9.122 8.544 8.02216.398 14.992 13.754 12.659 11.690 10.828 10.059 9.372 8.756 8.20117.226 15.679 14.324 13.134 12.085 11.158 10.336 9.604 8.950 8.36518.046 16.351 14.878 13.590 12.462 11.470 10.594 9.818 9.1298.5148.851 8.313 7.824Present Value of a Periodic Payment (Annuity)9%7% 8%1.0700 1.0800 1.090010%1.10002.0700 2.0800 2.0900 2.10005.1010 5.2040 5.30916.1520 6.3081 6.46847.2135 7.4343 7.66258.2857 8.5830 8.89239.487211.4369.3685 9.7546 10.15912.488 13.02113.57914.487 15.19315.9371%2% 3%4%5% 6%1.0000 1.0200 1.0300 1.0400 1.0500 1.06002.0100 2.0200 2.0300 2.0400 2.0500 2.06003.0301 3.0604 3.0909 3.1216 3.1525 3.1836 3.2149 3.2464 3.2781 3.31004.0604 4.1216 4.1836 4.2465 4.3101 4.3746 4.4399 4.5061 4.57314.64105.4163 5.5256 5.6371 5.7507 5.8666 5.9847 6.10516.6330 6.8019 6.9753 7.1533 7.3359 7.5233 7.71567.8983 8.1420 8.3938 8.6540 8.9228 9.20049.2142 9.5491 9.8975 10.260 10.637 11.02810.583 11.027 11.491 11.97810.462 10.950 11.464 12.006 12.578 13.181 13.81611.567 12.169 12.808 13.486 14.207 14.972 15.784 16.645 17.560 18.53112.683 13.412 14.192 15.026 15.917 16.870 17.888 18.977 20.141 21.38413.809 14.680 15.618 16.627 17.713 18.882 20.141 21.495 22.953 24.52314.947 15.974 17.086 18.292 19.599 21.015 22.550 24.215 26.019 27.97516.097 17.29321.579 23.276 25.129 27.152 29.36117.258 18.639 20.157 21.825 23.65725.673 27.888 30.324 33.00318.430 20.012 21.762 23.698 25.84019.615 21.412 23.414 25.645 28.13220.811 22.841 25.117 27.671 30.53922.019 24.297 26.870 29.778 33.06626.973 30.422 34.42639.083 44.50263.276 77.598 95.83631.77235.95040.54528.213 30.840 33.750 36.97430.906 33.999 37.450 41.301 45.59933.760 37.379 41.446 46.018 51.15936.786 40.995 45.762 51.160 57.27550.816 58.177 66.765 76.790 88.497119.121 148.913 187.102 236.125 299.12743.077 51.994Future Value of an Annuity0.926 0.917 0.9091.783 1.759 1.7362.577 2.531 2.4873.312 3.240 3.1703.993 3.890 3.7917.139 6.805 6.4957.536 7.161 6.8147.904 7.487 7.1038.244 7.786 7.3678.559 8.061 7.606 1112345Periods6789101112131415161718Tom has decided he wants to use some of hisexcess cash to invest in either a new piece of equipment orinitiate an advertising &#34;blitz.&#34; Use the followinginformation and the tables below to determine the netpresent value of each option.1920New Equipment Option:New equipment cost: $1,000Old equipment sale: $200Annual savings on utilities: $300 per yearAdvertising Blitz Option:Cost of advertising &#34;blitz.&#34;: $500 per yearAnnual increase in sales due to ads: $650 per yearHe is using a 5-year horizon for his decision and a 3% rateof interest.Which option would you recommend and why?PRESENT VALUE TABLEPresent Value of a Lump Sum Payment (Compound Interest)Interest rates (r)1% 2% 3% 4% 5% 6% 7% 8% 9% 10%0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.9090.980 0.961 0.943 0.925 0.907 0.890 0.873 0.857 0.842 0.8260.971 0.942 0.915 0.889 0.864 0.840 0.816 0.794 0.772 0.7510.961 0.924 0.888 0.855 0.823 0.792 0.763 0.735 0.708 0.6830.951 0.906 0.863 0.822 0.784 0.747 0.713 0.681 0.650 0.6210.942 0.888 0.837 0.790 0.746 0705 0.666 0.630 0.596 0.5640.933 0.871 0.813 0.760 0.711 0.665 0.623 0.583 0.547 0.5130.923 0.853 0.789 0.731 0.677 0.627 0.582 0.540 0.502 0.4670.914 0.837 0.766 0.703 0.6450.592 0.544 0.500 0.460 0.4240.905 0.820 0.744 0.676 0.614 0.558 0.508 0.463 0.422 0.3860.896 0.8040.722 0.650 0.585 0.527 0.475 0.429 0.388 0.3500.887 0.788 0.701 0.625 0.557 0.497 0.444 0.397 0.356 0.3190.879 0.773 0.681 0.601 0.530 0.469 0.415 0.368 0.326 0.2900.870 0.758 0.661 0.577 0.505 0.442 0.388 0.340 0.299 0.2630.861 0.743 0.642 0.555 0.481 0.417 0.362 0.315 0.275 0.2390.853 0.728 0.623 0.534 0.458 0.394 0.339 0.292 0.252 0.2180.844 0.714 0.605 0.513 0.436 0.371 0.317 0.270 0.231 0.1980.836 0.700 0.587 0.494 0.416 0.350 0.296 0.250 0.212 0.1800.828 0.686 0.570 0.475 0.396 0.331 0.277 0.232 0.194 0.1640.8200.6730.5540.456 0.377 0.3120.258 0.215 0.178 0.149

Accepted Answer

Present value is one method of selection of projects based on time value of money and should have…