Question

Consider the cash flows for the following two projects:

n A B
0    -$32,000 -$39,950
1 $6,600 $7,950
2 $9,500              $7,900
3 $8,150     $6,750
4 $X         $6,925
5                   $8,050              $9,000
      6                   $5,500              $9,650

(a) For project A, find the value of X that makes the equivalent annual receipts equal the equivalent annual disbursement at i=8%
(b) Would you accept project B at i=6% based on AE criterion?

Answer 1

Solution:

Book1 Excel 2 HOME INSERT PAGE LAYOUTFORMULAS DATA REVIEW VIEW ACROBAT KPMG 品田 S Cut Σ AutoSum -A Wrap Tot Calibri General Copy Sort & Find& Filter Select B 1 u . 田. 2.A.---恒桓茁Merge & Center. $. % , 留1: conditional Format as Cell Insert Delete Format Clear Format Painter Formatting TableStyles Editing Font Alignment N17 G H Project A Project B Year Cash Flow PVF8%PV 32000 1-32000 39950 1-39950. 0.92593 6111.11 0.925936111.11 0.85734 8144.72 0.793836469.73 0.735032329.81 0.680585478.69 0.63017 3465.93 0.00 7950 0.94340 7500.00 0.89000 703 0.83962 5667.43 0.79209 5485. 0.74726 6725.32 0.70496 6802.8 0.85734 8144.72 8150 0.79383 6469.73 Ans-(1) 9500 8150 3169.68 8050 6750 0.73503 0.68058 0.63017 0.00 5478.69 3465.93 2329.81 10 5500 NPV NPV 738.16 Decision: Project B should not be accepted at 1-6%. Because, NPV is negative 15 17 21 Sheet1 囲回匹 + 100% 03-07 PM 05/12/19 O Type here to search

Formula View:

Book1 Excel HOME INSERT PAGE LAYOUTFORMULAS DATA REVIEW VIEW ACROBAT KPMG Trace Dependents SShowFormulas . 6 Ís Σ RIS E Aeg O ■凸%Define Fam ela. 国 "calculate Now 嚷Trace Dependents◆Error Checking. Watch Calculation Calculate Sheet % Use in Formula 固Create from Selection Defined Names nsert AutoSum Recently Financial Logical Text Date & Lookup & Math& More Name Remove Arrows.⑤ Evaluate Formula -Time Reference Trig Functions Manager window Options . Used- Function Library Formula Auditing N17 L M 0 Project A Project B PVF @ 6%ㅁ PV shFI 32000 F@8% Ye sh Flo' 32000 D4 C4 D5*C5 J414 1/1.08 D5/1.08 D6/1.08 D7/1.08 D8/1.08 D9/1.08 1/1.06 05 N5 05/1.06 06 N6 06/1.06 07 N7 07/1.06 08 N8 -08/1.06 09 N9 1/1.08 J5/1.08 J6/1.08 1 6600 2 9500 3 8150 6600 7950 7900 6750 6925 9000 9500 8150 3169.68 7/1.08 8050 5500 D7*C7 D8 C8 D9*C9 -D10 C10 Ans-(1) J717 J818 5 8050 5500 J9/1.08 10 เป10°110 SUM(K4:K10) 1.06 010 N10 NPV SUM(E4 E10) NPV NPV SUM(P4:P10 Decision: Project B should not be accepted at i6%. Because, NPV is negative 17 20 Sheet1 囲回匹 + 100% 03-08 PM 05/12/19 O Type here to search

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