i. Present worth analysis.

Question

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Answer 1

Question

Chapter 7, Problem 65P

To determine

i.

Present worth analysis.

Expert Solution

Answer to Problem 65P

As alternative B has the highest present worth, Alternative B is selected.

Explanation of Solution

Given:

Time: 10 years

Alternative A has a cost of $10000

Annual benefits of $4500

Alternative B costs $25000

Annual benefits of $8800.

Calculation:

Alternative A

The rates are discounted to the present value at 8%

$PWA= 746(P/A,i,n)−2500 = 746(P/A,8%,5)−2500 =746(3.993)−2500 746(P/A,i,n)−2500 =2978.778−2500 = $478.778$

Alternative B

$PWA= 1664(P/A,i,n)−6000 = 1664(P/A,8%,5)−6000 =1664(3.993)−6000 746(P/A,i,n)−2500 =6644−6400 = $644.352$ .

Conclusion:

As alternative B has the highest present worth, Alternative B is selected.

To determine

ii.

Annual Cash Flow.

Expert Solution

Answer to Problem 65P

Alternative B has the highest cash flow.

Explanation of Solution

Given:

Time: 10 years

Alternative A has a cost of $10000

Annual benefits of $4500

Alternative B costs $25000

Annual benefits of $8800.

Calculation

Calculate annual cash flow as follows:

(EUAB-EAUC)_B = 1664-6000(A/P,8%,5)

= 1664-6000(0.2505)

= 1664-1503

= $161.

Conclusion:

Alternative B has the highest cash flow.

Thus alternative B is selected.

To determine

ii.

Rate of return analysis.

Expert Solution

Answer to Problem 65P

Alternative A is selected.

Explanation of Solution

Given:

Two mutually exclusive alternatives are being considered. Both have lives of 10 years. Alternative A has a cost of $10000 and annual benefits of $4500. Alternative B costs $25000 and has annual benefits of $8800.

Calculation:

For A = $=−2500(1+r)0+746(1+r)1+746(1+r)2+746(1+r)3+746(1+r)4+746(1+r)5+746(1+r)6+746(1+r)7+746(1+r)8+746(1+r)9+746(1+r)10r = 27.14%$ For B

$=−6000(1+r)0+1664(1+r)1+1664(1+r)2+1664(1+r)3+1664(1+r)4+1664(1+r)5+1664(1+r)6+1664(1+r)7+1664(1+r)8+1664(1+r)9+1664(1+r)10r = 24.68%$

Year	Alternative A	Alternative B
0	-2500	-6000
1	746	1664
2	$746	1664
3	746	1664
4	746	1664
5	746	1664
6	746	1664
7	746	1664
8	746	1664
9	746	1664
10	746	1664
IRR	27.14%	24.68%

Conclusion:

Alternative A is selected.

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Answer 2

Question

Chapter 7, Problem 65P

To determine

i.

Present worth analysis.

Expert Solution

Answer to Problem 65P

As alternative B has the highest present worth, Alternative B is selected.

Explanation of Solution

Given:

Time: 10 years

Alternative A has a cost of $10000

Annual benefits of $4500

Alternative B costs $25000

Annual benefits of $8800.

Calculation:

Alternative A

The rates are discounted to the present value at 8%

$PWA= 746(P/A,i,n)−2500 = 746(P/A,8%,5)−2500 =746(3.993)−2500 746(P/A,i,n)−2500 =2978.778−2500 = $478.778$

Alternative B

$PWA= 1664(P/A,i,n)−6000 = 1664(P/A,8%,5)−6000 =1664(3.993)−6000 746(P/A,i,n)−2500 =6644−6400 = $644.352$ .

Conclusion:

As alternative B has the highest present worth, Alternative B is selected.

To determine

ii.

Annual Cash Flow.

Expert Solution

Answer to Problem 65P

Alternative B has the highest cash flow.

Explanation of Solution

Given:

Time: 10 years

Alternative A has a cost of $10000

Annual benefits of $4500

Alternative B costs $25000

Annual benefits of $8800.

Calculation

Calculate annual cash flow as follows:

(EUAB-EAUC)_B = 1664-6000(A/P,8%,5)

= 1664-6000(0.2505)

= 1664-1503

= $161.

Conclusion:

Alternative B has the highest cash flow.

Thus alternative B is selected.

To determine

ii.

Rate of return analysis.

Expert Solution

Answer to Problem 65P

Alternative A is selected.

Explanation of Solution

Given:

Two mutually exclusive alternatives are being considered. Both have lives of 10 years. Alternative A has a cost of $10000 and annual benefits of $4500. Alternative B costs $25000 and has annual benefits of $8800.

Calculation:

For A = $=−2500(1+r)0+746(1+r)1+746(1+r)2+746(1+r)3+746(1+r)4+746(1+r)5+746(1+r)6+746(1+r)7+746(1+r)8+746(1+r)9+746(1+r)10r = 27.14%$ For B

$=−6000(1+r)0+1664(1+r)1+1664(1+r)2+1664(1+r)3+1664(1+r)4+1664(1+r)5+1664(1+r)6+1664(1+r)7+1664(1+r)8+1664(1+r)9+1664(1+r)10r = 24.68%$

Year	Alternative A	Alternative B
0	-2500	-6000
1	746	1664
2	$746	1664
3	746	1664
4	746	1664
5	746	1664
6	746	1664
7	746	1664
8	746	1664
9	746	1664
10	746	1664
IRR	27.14%	24.68%

Conclusion:

Alternative A is selected.

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Answer 3

Question

Chapter 7, Problem 65P

To determine

i.

Present worth analysis.

Expert Solution

Answer to Problem 65P

As alternative B has the highest present worth, Alternative B is selected.

Explanation of Solution

Given:

Time: 10 years

Alternative A has a cost of $10000

Annual benefits of $4500

Alternative B costs $25000

Annual benefits of $8800.

Calculation:

Alternative A

The rates are discounted to the present value at 8%

$PWA= 746(P/A,i,n)−2500 = 746(P/A,8%,5)−2500 =746(3.993)−2500 746(P/A,i,n)−2500 =2978.778−2500 = $478.778$

Alternative B

$PWA= 1664(P/A,i,n)−6000 = 1664(P/A,8%,5)−6000 =1664(3.993)−6000 746(P/A,i,n)−2500 =6644−6400 = $644.352$ .

Conclusion:

As alternative B has the highest present worth, Alternative B is selected.

To determine

ii.

Annual Cash Flow.

Expert Solution

Answer to Problem 65P

Alternative B has the highest cash flow.

Explanation of Solution

Given:

Time: 10 years

Alternative A has a cost of $10000

Annual benefits of $4500

Alternative B costs $25000

Annual benefits of $8800.

Calculation

Calculate annual cash flow as follows:

(EUAB-EAUC)_B = 1664-6000(A/P,8%,5)

= 1664-6000(0.2505)

= 1664-1503

= $161.

Conclusion:

Alternative B has the highest cash flow.

Thus alternative B is selected.

To determine

ii.

Rate of return analysis.

Expert Solution

Answer to Problem 65P

Alternative A is selected.

Explanation of Solution

Given:

Two mutually exclusive alternatives are being considered. Both have lives of 10 years. Alternative A has a cost of $10000 and annual benefits of $4500. Alternative B costs $25000 and has annual benefits of $8800.

Calculation:

For A = $=−2500(1+r)0+746(1+r)1+746(1+r)2+746(1+r)3+746(1+r)4+746(1+r)5+746(1+r)6+746(1+r)7+746(1+r)8+746(1+r)9+746(1+r)10r = 27.14%$ For B

$=−6000(1+r)0+1664(1+r)1+1664(1+r)2+1664(1+r)3+1664(1+r)4+1664(1+r)5+1664(1+r)6+1664(1+r)7+1664(1+r)8+1664(1+r)9+1664(1+r)10r = 24.68%$

Year	Alternative A	Alternative B
0	-2500	-6000
1	746	1664
2	$746	1664
3	746	1664
4	746	1664
5	746	1664
6	746	1664
7	746	1664
8	746	1664
9	746	1664
10	746	1664
IRR	27.14%	24.68%

Conclusion:

Alternative A is selected.

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Answer 4

Question

Chapter 7, Problem 65P

To determine

i.

Present worth analysis.

Expert Solution

Answer to Problem 65P

As alternative B has the highest present worth, Alternative B is selected.

Explanation of Solution

Given:

Time: 10 years

Alternative A has a cost of $10000

Annual benefits of $4500

Alternative B costs $25000

Annual benefits of $8800.

Calculation:

Alternative A

The rates are discounted to the present value at 8%

$PWA= 746(P/A,i,n)−2500 = 746(P/A,8%,5)−2500 =746(3.993)−2500 746(P/A,i,n)−2500 =2978.778−2500 = $478.778$

Alternative B

$PWA= 1664(P/A,i,n)−6000 = 1664(P/A,8%,5)−6000 =1664(3.993)−6000 746(P/A,i,n)−2500 =6644−6400 = $644.352$ .

Conclusion:

As alternative B has the highest present worth, Alternative B is selected.

To determine

ii.

Annual Cash Flow.

Expert Solution

Answer to Problem 65P

Alternative B has the highest cash flow.

Explanation of Solution

Given:

Time: 10 years

Alternative A has a cost of $10000

Annual benefits of $4500

Alternative B costs $25000

Annual benefits of $8800.

Calculation

Calculate annual cash flow as follows:

(EUAB-EAUC)_B = 1664-6000(A/P,8%,5)

= 1664-6000(0.2505)

= 1664-1503

= $161.

Conclusion:

Alternative B has the highest cash flow.

Thus alternative B is selected.

To determine

ii.

Rate of return analysis.

Expert Solution

Answer to Problem 65P

Alternative A is selected.

Explanation of Solution

Given:

Two mutually exclusive alternatives are being considered. Both have lives of 10 years. Alternative A has a cost of $10000 and annual benefits of $4500. Alternative B costs $25000 and has annual benefits of $8800.

Calculation:

For A = $=−2500(1+r)0+746(1+r)1+746(1+r)2+746(1+r)3+746(1+r)4+746(1+r)5+746(1+r)6+746(1+r)7+746(1+r)8+746(1+r)9+746(1+r)10r = 27.14%$ For B

$=−6000(1+r)0+1664(1+r)1+1664(1+r)2+1664(1+r)3+1664(1+r)4+1664(1+r)5+1664(1+r)6+1664(1+r)7+1664(1+r)8+1664(1+r)9+1664(1+r)10r = 24.68%$

Year	Alternative A	Alternative B
0	-2500	-6000
1	746	1664
2	$746	1664
3	746	1664
4	746	1664
5	746	1664
6	746	1664
7	746	1664
8	746	1664
9	746	1664
10	746	1664
IRR	27.14%	24.68%

Conclusion:

Alternative A is selected.

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Answer 5

Chapter 7, Problem 65P

To determine

i.

Present worth analysis.

Expert Solution

Answer to Problem 65P

As alternative B has the highest present worth, Alternative B is selected.

Explanation of Solution

Given:

Time: 10 years

Alternative A has a cost of $10000

Annual benefits of $4500

Alternative B costs $25000

Annual benefits of $8800.

Calculation:

Alternative A

The rates are discounted to the present value at 8%

$PWA= 746(P/A,i,n)−2500 = 746(P/A,8%,5)−2500 =746(3.993)−2500 746(P/A,i,n)−2500 =2978.778−2500 = $478.778$

Alternative B

$PWA= 1664(P/A,i,n)−6000 = 1664(P/A,8%,5)−6000 =1664(3.993)−6000 746(P/A,i,n)−2500 =6644−6400 = $644.352$ .

Conclusion:

As alternative B has the highest present worth, Alternative B is selected.

To determine

ii.

Annual Cash Flow.

Expert Solution

Answer to Problem 65P

Alternative B has the highest cash flow.

Explanation of Solution

Given:

Time: 10 years

Alternative A has a cost of $10000

Annual benefits of $4500

Alternative B costs $25000

Annual benefits of $8800.

Calculation

Calculate annual cash flow as follows:

(EUAB-EAUC)_B = 1664-6000(A/P,8%,5)

= 1664-6000(0.2505)

= 1664-1503

= $161.

Conclusion:

Alternative B has the highest cash flow.

Thus alternative B is selected.

To determine

ii.

Rate of return analysis.

Expert Solution

Answer to Problem 65P

Alternative A is selected.

Explanation of Solution

Given:

Two mutually exclusive alternatives are being considered. Both have lives of 10 years. Alternative A has a cost of $10000 and annual benefits of $4500. Alternative B costs $25000 and has annual benefits of $8800.

Calculation:

For A = $=−2500(1+r)0+746(1+r)1+746(1+r)2+746(1+r)3+746(1+r)4+746(1+r)5+746(1+r)6+746(1+r)7+746(1+r)8+746(1+r)9+746(1+r)10r = 27.14%$ For B

$=−6000(1+r)0+1664(1+r)1+1664(1+r)2+1664(1+r)3+1664(1+r)4+1664(1+r)5+1664(1+r)6+1664(1+r)7+1664(1+r)8+1664(1+r)9+1664(1+r)10r = 24.68%$

Year	Alternative A	Alternative B
0	-2500	-6000
1	746	1664
2	$746	1664
3	746	1664
4	746	1664
5	746	1664
6	746	1664
7	746	1664
8	746	1664
9	746	1664
10	746	1664
IRR	27.14%	24.68%

Conclusion:

Alternative A is selected.

Answer 6

Chapter 7, Problem 65P

To determine

i.

Present worth analysis.

Expert Solution

Answer to Problem 65P

As alternative B has the highest present worth, Alternative B is selected.

Explanation of Solution

Given:

Time: 10 years

Alternative A has a cost of $10000

Annual benefits of $4500

Alternative B costs $25000

Annual benefits of $8800.

Calculation:

Alternative A

The rates are discounted to the present value at 8%

$PWA= 746(P/A,i,n)−2500 = 746(P/A,8%,5)−2500 =746(3.993)−2500 746(P/A,i,n)−2500 =2978.778−2500 = $478.778$

Alternative B

$PWA= 1664(P/A,i,n)−6000 = 1664(P/A,8%,5)−6000 =1664(3.993)−6000 746(P/A,i,n)−2500 =6644−6400 = $644.352$ .

Conclusion:

As alternative B has the highest present worth, Alternative B is selected.

Answer 7

Chapter 7, Problem 65P

To determine

i.

Present worth analysis.

Answer 8

Expert Solution

Answer to Problem 65P

As alternative B has the highest present worth, Alternative B is selected.

Answer 9

Expert Solution

Answer 10

Expert Solution

Answer 11

Expert Solution

Answer 12

Explanation of Solution

Given:

Time: 10 years

Alternative A has a cost of $10000

Annual benefits of $4500

Alternative B costs $25000

Annual benefits of $8800.

Calculation:

Alternative A

The rates are discounted to the present value at 8%

$PWA= 746(P/A,i,n)−2500 = 746(P/A,8%,5)−2500 =746(3.993)−2500 746(P/A,i,n)−2500 =2978.778−2500 = $478.778$

Alternative B

$PWA= 1664(P/A,i,n)−6000 = 1664(P/A,8%,5)−6000 =1664(3.993)−6000 746(P/A,i,n)−2500 =6644−6400 = $644.352$ .

Conclusion:

As alternative B has the highest present worth, Alternative B is selected.

Answer 13

To determine

ii.

Annual Cash Flow.

Expert Solution

Answer to Problem 65P

Alternative B has the highest cash flow.

Explanation of Solution

Given:

Time: 10 years

Alternative A has a cost of $10000

Annual benefits of $4500

Alternative B costs $25000

Annual benefits of $8800.

Calculation

Calculate annual cash flow as follows:

(EUAB-EAUC)_B = 1664-6000(A/P,8%,5)

= 1664-6000(0.2505)

= 1664-1503

= $161.

Conclusion:

Alternative B has the highest cash flow.

Thus alternative B is selected.

Answer 14

To determine

ii.

Annual Cash Flow.

Answer 15

Expert Solution

Answer to Problem 65P

Alternative B has the highest cash flow.

Answer 16

Expert Solution

Answer 17

Expert Solution

Answer 18

Expert Solution

Answer 19

Explanation of Solution

Given:

Time: 10 years

Alternative A has a cost of $10000

Annual benefits of $4500

Alternative B costs $25000

Annual benefits of $8800.

Calculation

Calculate annual cash flow as follows:

(EUAB-EAUC)_B = 1664-6000(A/P,8%,5)

= 1664-6000(0.2505)

= 1664-1503

= $161.

Conclusion:

Alternative B has the highest cash flow.

Thus alternative B is selected.

Answer 20

To determine

ii.

Rate of return analysis.

Expert Solution

Answer to Problem 65P

Alternative A is selected.

Explanation of Solution

Given:

Two mutually exclusive alternatives are being considered. Both have lives of 10 years. Alternative A has a cost of $10000 and annual benefits of $4500. Alternative B costs $25000 and has annual benefits of $8800.

Calculation:

For A = $=−2500(1+r)0+746(1+r)1+746(1+r)2+746(1+r)3+746(1+r)4+746(1+r)5+746(1+r)6+746(1+r)7+746(1+r)8+746(1+r)9+746(1+r)10r = 27.14%$ For B

$=−6000(1+r)0+1664(1+r)1+1664(1+r)2+1664(1+r)3+1664(1+r)4+1664(1+r)5+1664(1+r)6+1664(1+r)7+1664(1+r)8+1664(1+r)9+1664(1+r)10r = 24.68%$

Year	Alternative A	Alternative B
0	-2500	-6000
1	746	1664
2	$746	1664
3	746	1664
4	746	1664
5	746	1664
6	746	1664
7	746	1664
8	746	1664
9	746	1664
10	746	1664
IRR	27.14%	24.68%

Conclusion:

Alternative A is selected.

Answer 21

To determine

ii.

Rate of return analysis.

Answer 22

Expert Solution

Answer to Problem 65P

Alternative A is selected.

Answer 23

Expert Solution

Answer 24

Expert Solution

Answer 25

Expert Solution

Answer 26

Explanation of Solution

Given:

Two mutually exclusive alternatives are being considered. Both have lives of 10 years. Alternative A has a cost of $10000 and annual benefits of $4500. Alternative B costs $25000 and has annual benefits of $8800.

Calculation:

For A = $=−2500(1+r)0+746(1+r)1+746(1+r)2+746(1+r)3+746(1+r)4+746(1+r)5+746(1+r)6+746(1+r)7+746(1+r)8+746(1+r)9+746(1+r)10r = 27.14%$ For B