Homework Answers
| Alpha | |||
| Years | Benefits | PVF @ 10% | Present Value |
| 0 | -600 | 1 | =+B3*C3 |
| 1 | 158.3 | =1/1.1 | =+B4*C4 |
| 2 | 158.3 | =+C4/1.1 | =+C5*B5 |
| 3 | 158.3 | =+C5/1.1 | =+C6*B6 |
| 4 | 158.3 | =+C6/1.1 | =+C7*B7 |
| 5 | 158.3 | =+C7/1.1 | =+C8*B8 |
| NPV | =SUM(D3:D8) | ||
| Beta | |||
| Years | Benefits | PVF @ 10% | Present Value |
| 0 | -500 | 1 | =+B14*C14 |
| 1 | 139.7 | =1/1.1 | =+B15*C15 |
| 2 | 139.7 | =+C15/1.1 | =+B16*C16 |
| 3 | 139.7 | =+C16/1.1 | =+B17*C17 |
| 4 | 139.7 | =+C17/1.1 | =+B18*C18 |
| 5 | 139.7 | =+C18/1.1 | =+B19*C19 |
| NPV | =SUM(D14:D19) | ||
| Gamma | |||
| Years | Benefits | PVF @ 10% | Present Value |
| 0 | -200 | 1 | =B25*C25 |
| 1 | 58.3 | =1/1.1 | =B26*C26 |
| 2 | 58.3 | =+C26/1.1 | =B27*C27 |
| 3 | 58.3 | =+C27/1.1 | =B28*C28 |
| 4 | 58.3 | =+C28/1.1 | =B29*C29 |
| 5 | 58.3 | =+C29/1.1 | =B30*C30 |
| NPV | =SUM(D25:D30) | ||
Since the NPV of Gamma is more than Alpha & Beta , Gamma is the Best one to select.
We can also Calculate Benefit to Cost Ratio (BCR) - Total Benefits / Total Cost
Total Cost + NPV = Total Benefit
Aplha
Total benefit- 600+0.08 = 600.08
Total Cost= 600
BCR= 600.08/600
= 1.001 (Approx)
Beta
Total Benefit = 500+29.7 = 529.7
Total Cost = 500
BCR = 529.7/500
=1.059 (Approx)
Gamma
Total Benefit= 200+21 = 221
Total Cost = 200
BCR= 221/200
=1.105 (Approx)
Since BCR of Gamma is more it is most beneficial.
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