Option 01 has 12 years and option 02 has 8 years of life, and the MARR is 9 percent. Option 02, is not going to be replaced at the end of its useful life and those two options are the only available options to us at the moment (They are unique). Compare 12 years of 01 with 8 years of O2 and find the best option. Option: First Cost ($) Uniform Annual Benefit ($) Salvage Value ($) 01 1,400 245 190 02 900 265.99 0

Option 01 has 12 years and option 02 has 8 years of life, and the MARR is 9 percent. Option 02, is not going to be replaced at the end of its useful life and those two options are the only available options to us at the moment (They are unique). Compare 12 years of 01 with 8 years of O2 and find the best option. Option: First Cost ($) Uniform Annual Benefit ($) Salvage Value ($) 01 1,400 245 190 02 900 265.99 0

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Consider two mutually exclusive alternative. Construction a choice table using PW for interest rate from 0% to 20%. If the minimum attractive rate of return is 8%, which alternative should be selected? Alternative A B Fist cost $2,000 $3,000 Uniform annual benefit $450 $600 Salvage Value $200 700 Useful life 6 years 6 years Hint: Equation: PW_A = 450(P/A, i, 6) + 200(P/F, i, 6) – 2000 PW_B = 600(P/A, i, 6) + 700(P/F, i, 6) – 3000 or Spreadsheet: PW_A = -PV(i, nper, pmt, fv) – 2000 = -PV(i, 6, 450, 200) - 2000 PW_B = -PV(i, nper, pmt, fv) – 3000 = -PV(i, 6, 600, 700) - 3000
Consider the following four alternatives. Three are do-something and one is Do -Nothing. Alternative A B D Cost $O $50 $30 $40 Net annual benefit Useful life (years) Which is the preferred alternative? If 10% interest rate is selected. Use PW analysis. $O $14 $5 $7 5 10 10
Two different alternatives are being compared. Using Net Present Worth Analysis which alternative is best? Use an interest rate of 9%. Alternative Initial Cost A В $ 1,425 $ 2,168 $ 1,325 $ $ Annual Benefit 620 Salvage Value Useful Life (years) 465 $ 897 3 9. A is the best alternative Choose neither alternative Choose either alternative B is the best alternative
6. Since the minimum return rate is 6%, which of the following options is more appropriate? option A option B 100 option C 200 option D 500 Investment cost, ECU Annual profit, ECU/yıl 400 100.9 27.7 46.2 125.2 For all options, the service life is 5 years and the scrap value is zero.
8. Consider the following three mutually exclusive alternatives. Each alternative has a 10- year useful life and no salvage value. Using present worth analysis, draw a graph in the MS Excel template on sheet Q8 showing these three alternatives for various interest rates (save this graph as a separate sheet in MS Excel and name this sheet Graph Q8). Also construct a choice table for interest rates from 0% to 100%. Show your choice table in your working document. Initial cost Annual benefit in each of first 5 years Annual benefit in each of subsequent 5 years A $1,500 250 450 B $1,000 250 250 C $2,035 650 145
If a finite-life alternative (for example, 5 years) is compared to one with an indefinite or very long life, capitalized costs can be used. To determine capitalized cost for the finite life alternative, calculate the equivalent A value for one life cycle and divide by the interest rate. Select one: a. True b. False The annual worth method of comparing alternatives is often preferred to the present worth method, Select one: a. because AW for the first cycle is not the AW for the second. b. because the AW comparison is performed for only one life cycle. c. because AW is determined at MARR value. d. none of the answers. Last cash flow occurs in the same period as P Select one: a. False O b. True Straight line depreciation applies when book value decreases linearly with time. Select one: a. True b. False
Consider the following three options: (1) receive a one-time payment $102 now, (2) receive a one-time benefit of $115 in 5 years (from now), (3) receive $2 every year forever. If the yearly discount rate is 2%, which option would yield the most revenue? O option 3 O option 2 O option 1 O options 1 and 3
2) Data for 2 alternatives are given below, determine the cost of alternative B so that the two alternatives will be equally desirable. Assume an interest rate of 15%. Use benefit cost ratio analysis Alternatives A B Cost P100KX Salvage Value 10k 16k Annual Benefit 28k 30k Life (years) 10 12
Consider alternatives A and B as shown below. The interest rate is 9%. For parts a) and b), let X = $250. For parts a) and b), which alternative is preferred: a) by equivalent annual worth analysis? b) by payback period? c) Compute the value of X that makes the two alternatives equally desirable. Initial cost Uniform annual benefit Salvage value Useful life, in years A $500 200 100 5 B $900 X 120 5
Data for 2 alternatives are given below, determine the cost of alternative B so that the two alternatives will be equally desirable. Assume an interest rate of 15%. Use benefit cost ratio analysis Alternatives A Cost Salvage Value Annual Benefit Life (years) B P100k X 10k 16k 28k 30k 10 12
An alternative with an infinite life has a B/C ration of 1.5. The alternative has benefits of P50,000 per year and annual maintenance costs of P10,000 per year. The initial cost of the alternative at an interest rate of 10% per year is closes to which value? Select one: O a. P233,000 o b. P23,300 o c. P85,400 o d. P146,100
Two alternatives are being considered: B First cost Uniform annual benefit Useful life, in 5000 9600 1750 1850 4 8 years If the minimum attractive rate of return is 7%, which alternative should be selected? Solution: 1. Use the increment analysis, we should use 2. Terms n= 3. The Increment CFD has 3 basic patterns: O AP= O AA= O AF= occurred at end of year 4. AROR= % 5. Choose Please answer all parts of the question.

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