(a)
To construct:A choice table for interest tables from 0% to 100%
(a)
Answer to Problem 9P
From table below, from 0% to 7.98%, South end + North end should be preferred on account of higher
Explanation of Solution
NPV of South end
NPV of South & North end
Choice table for interest from 0% to 100%
Interest rate | (P/A,i,5) | (P/F,i,5) | South end | South + North end |
0% | 5.00 | 1.00 | 1,425,000 | 1,775,000 |
1% | 4.85 | 0.95 | 1,383,228 | 1,680,705 |
2% | 4.71 | 0.91 | 1,343,336 | 1,591,115 |
3% | 4.58 | 0.86 | 1,305,217 | 1,505,941 |
4% | 4.45 | 0.82 | 1,268,769 | 1,424,915 |
5% | 4.33 | 0.78 | 1,233,901 | 1,347,788 |
6% | 4.21 | 0.75 | 1,200,524 | 1,274,327 |
7% | 4.10 | 0.71 | 1,168,556 | 1,204,318 |
8% | 3.99 | 0.68 | 1,137,922 | 1,137,558 |
9% | 3.89 | 0.65 | 1,108,551 | 1,073,861 |
10% | 3.79 | 0.62 | 1,080,374 | 1,013,052 |
11% | 3.70 | 0.59 | 1,053,331 | 954,968 |
12% | 3.60 | 0.57 | 1,027,361 | 899,457 |
13% | 3.52 | 0.54 | 1,002,411 | 846,376 |
14% | 3.43 | 0.52 | 978,428 | 795,593 |
15% | 3.35 | 0.50 | 955,364 | 746,984 |
16% | 3.27 | 0.48 | 933,174 | 700,431 |
17% | 3.20 | 0.46 | 911,814 | 655,825 |
18% | 3.13 | 0.44 | 891,244 | 613,064 |
19% | 3.06 | 0.42 | 871,426 | 572,053 |
20% | 2.99 | 0.40 | 852,324 | 532,700 |
21% | 2.93 | 0.39 | 833,906 | 494,921 |
22% | 2.86 | 0.37 | 816,137 | 458,637 |
23% | 2.80 | 0.36 | 798,990 | 423,773 |
24% | 2.75 | 0.34 | 782,435 | 390,258 |
25% | 2.69 | 0.33 | 766,445 | 358,026 |
26% | 2.64 | 0.31 | 750,995 | 327,014 |
27% | 2.58 | 0.30 | 736,062 | 297,164 |
28% | 2.53 | 0.29 | 721,622 | 268,421 |
29% | 2.48 | 0.28 | 707,654 | 240,732 |
30% | 2.44 | 0.27 | 694,137 | 214,047 |
31% | 2.39 | 0.26 | 681,053 | 188,320 |
32% | 2.35 | 0.25 | 668,383 | 163,507 |
33% | 2.30 | 0.24 | 656,110 | 139,566 |
34% | 2.26 | 0.23 | 644,217 | 116,458 |
35% | 2.22 | 0.22 | 632,689 | 94,145 |
36% | 2.18 | 0.21 | 621,510 | 72,592 |
37% | 2.14 | 0.21 | 610,668 | 51,766 |
38% | 2.11 | 0.20 | 600,147 | 31,636 |
39% | 2.07 | 0.19 | 589,936 | 12,170 |
40% | 2.04 | 0.19 | 580,022 | (6,659) |
41% | 2.00 | 0.18 | 570,394 | (24,879) |
42% | 1.97 | 0.17 | 561,040 | (42,515) |
43% | 1.94 | 0.17 | 551,951 | (59,591) |
44% | 1.91 | 0.16 | 543,116 | (76,132) |
45% | 1.88 | 0.16 | 534,525 | (92,157) |
46% | 1.85 | 0.15 | 526,170 | (107,689) |
47% | 1.82 | 0.15 | 518,042 | (122,748) |
48% | 1.79 | 0.14 | 510,133 | (137,352) |
49% | 1.76 | 0.14 | 502,434 | (151,520) |
50% | 1.74 | 0.13 | 494,938 | (165,267) |
51% | 1.71 | 0.13 | 487,638 | (178,612) |
52% | 1.69 | 0.12 | 480,527 | (191,570) |
53% | 1.66 | 0.12 | 473,598 | (204,154) |
54% | 1.64 | 0.12 | 466,845 | (216,381) |
55% | 1.61 | 0.11 | 460,262 | (228,262) |
56% | 1.59 | 0.11 | 453,844 | (239,811) |
57% | 1.57 | 0.10 | 447,583 | (251,040) |
58% | 1.55 | 0.10 | 441,476 | (261,962) |
59% | 1.53 | 0.10 | 435,517 | (272,586) |
60% | 1.51 | 0.10 | 429,700 | (282,925) |
61% | 1.49 | 0.09 | 424,023 | (292,987) |
62% | 1.47 | 0.09 | 418,479 | (302,784) |
63% | 1.45 | 0.09 | 413,065 | (312,325) |
64% | 1.43 | 0.08 | 407,777 | (321,618) |
65% | 1.41 | 0.08 | 402,610 | (330,672) |
66% | 1.39 | 0.08 | 397,560 | (339,495) |
67% | 1.38 | 0.08 | 392,625 | (348,095) |
68% | 1.36 | 0.07 | 387,800 | (356,481) |
69% | 1.34 | 0.07 | 383,082 | (364,658) |
70% | 1.33 | 0.07 | 378,468 | (372,634) |
71% | 1.31 | 0.07 | 373,954 | (380,417) |
72% | 1.30 | 0.07 | 369,539 | (388,011) |
73% | 1.28 | 0.06 | 365,217 | (395,423) |
74% | 1.27 | 0.06 | 360,988 | (402,660) |
75% | 1.25 | 0.06 | 356,848 | (409,726) |
76% | 1.24 | 0.06 | 352,794 | (416,628) |
77% | 1.22 | 0.06 | 348,825 | (423,370) |
78% | 1.21 | 0.06 | 344,937 | (429,958) |
79% | 1.20 | 0.05 | 341,128 | (436,396) |
80% | 1.18 | 0.05 | 337,396 | (442,689) |
81% | 1.17 | 0.05 | 333,740 | (448,841) |
82% | 1.16 | 0.05 | 330,156 | (454,857) |
83% | 1.15 | 0.05 | 326,643 | (460,741) |
84% | 1.13 | 0.05 | 323,199 | (466,497) |
85% | 1.12 | 0.05 | 319,821 | (472,129) |
86% | 1.11 | 0.04 | 316,509 | (477,640) |
87% | 1.10 | 0.04 | 313,260 | (483,034) |
88% | 1.09 | 0.04 | 310,073 | (488,314) |
89% | 1.08 | 0.04 | 306,946 | (493,484) |
90% | 1.07 | 0.04 | 303,878 | (498,547) |
91% | 1.06 | 0.04 | 300,866 | (503,505) |
92% | 1.05 | 0.04 | 297,910 | (508,363) |
93% | 1.04 | 0.04 | 295,008 | (513,122) |
94% | 1.03 | 0.04 | 292,158 | (517,786) |
95% | 1.02 | 0.04 | 289,360 | (522,357) |
96% | 1.01 | 0.03 | 286,612 | (526,838) |
97% | 1.00 | 0.03 | 283,912 | (531,231) |
98% | 0.99 | 0.03 | 281,260 | (535,538) |
99% | 0.98 | 0.03 | 278,654 | (539,763) |
100% | 0.97 | 0.03 | 276,094 | (543,906) |
(b)
To compute:The expected
(b)
Answer to Problem 9P
Expected rate of return if North end is openis 7.98%.
Explanation of Solution
NPV of south end = NPV of south & north end
Solving the above equation by taking interest rates on hit and trial basis, i falls between 7% and 8%. Interpolating the two interest rates, i = 7.98%.
If interest rate is between 0% to 7.98%, then it is better to open north end, otherwise it is better to continue with the existing one.
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Chapter 8 Solutions
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