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4. (25pts) Using makes the following an interest rate of 4.88894854% per year compounded monthly, find the appropriate value

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Answer #1

In year 0, project A cash flows are as follows:

Year CF Year 0 Formula
-4 120 145.86 FV(0.0488894854/12,4*12,,120)
-3 120 138.91 "
-2 100 110.25 "
-1 80 84.00 "
0 60 60.00 "
1 40 38.10 PV(0.0488894854/12,1*12,,40)
Year 0 577.12

For Project 2, year 0 cash lows are as follows:
35+0+ A/(1+0.0488894854/12)^(2*12) + 1.07*A/(1+0.0488894854/12)^(3*12) + 1.07^2*A/(1+0.0488894854/12)^(4*12) + 1.07^2*A/(1+0.0488894854/12)^(5*12) = 577.12
A/(1+0.0488894854/12)^(2*12) + 1.07*A/(1+0.0488894854/12)^(3*12) + 1.07^2*A/(1+0.0488894854/12)^(4*12) + 1.07^2*A/(1+0.0488894854/12)^(5*12) = 542.12
A(38.73) = 542.12
A = 145.22

To check:

Year CF PV
0 35 35.00
1 0 0.00
2 145.22 131.72
3 155.3854 134.23
4 166.2624 136.78
5 177.9007 139.39
Year 0 577.12
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