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C. Cash-Flow d. None QUESTION 7 Among Options A, B and C. Which one should be selected considering the Rate of Return Analysi
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Answer #1

in given option a ,b ,c

option (A):

benefit= $3000 per year, 6years

cash outflow=$10,000

Cash inflow= $3000*(pvaf 6yrs, @10%)i.e 4.355

=$13,665

net present value

= cash inflow - cash outflow

=13,665 - 10000

=$3,665.

rate of return = current cash flow -original value/original value*100

=13,665 - 10000/10000*100

=36.65%

Option (B):

benefit= $5000 per year, 6years

cash outflow=$12,000

Cash inflow= $5000*(pvaf 6yrs, @10%)i.e 4.355

=$21,775

net present value

= cash inflow - cash outflow

=21,775 - 12000

=$9,775

rate of return = current cash flow -original value/original value*100

=21,775 - 12000/12000*100

=81.46%

Option (C):

benefit= $4800 per year, 6years

cash outflow=$11,000

Cash inflow= $4800*(pvaf 6yrs, @10%)i.e 4.355

=$20,904

net present value

= cash inflow - cash outflow

=20,904 - 11000

=$9,904

rate of return = current cash flow -original value/original value*100

=20,904 - 11000/11000*100

=90.03%

from the above 3 options, option (C) should be considered

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