Homework Answers
| A. Present Value | |||||||||
| Year | A | B | C | ||||||
| Cashflow | Disc Rate | Disc. Cashflow | Cashflow | Disc. Cashflow | Cashflow | Disc. Cashflow | |||
| 0 | -16000 | =1 | -16,000.00 | -19000 | =1 | -19,000.00 | -24000 | =1 | -24,000.00 |
| 1 | 6000 | =1/1.09 | 5,504.59 | 8000 | =1/1.09 | 7,339.45 | 10000 | =1/1.09 | 9,174.31 |
| 2 | 6000 | =1/(1.09)^2 | 5,050.08 | 8000 | =1/(1.09)^2 | 6,733.44 | 10000 | =1/(1.09)^2 | 8,416.80 |
| 3 | 6000 | =1/(1.09)^3 | 4,633.10 | 8000 | =1/(1.09)^3 | 6,177.47 | 10000 | =1/(1.09)^3 | 7,721.83 |
| Present Value | -812.23 | 1,250.36 | 1,312.95 | ||||||
| Alternative C is best | |||||||||
| B. Future Value | |||||||||
| Year | A | B | C | ||||||
| Cashflow | Disc Rate | Disc. Cashflow | Cashflow | Disc. Cashflow | Cashflow | Disc. Cashflow | |||
| 0 | -16000 | (1.09)^3 | -20,720.46 | -19000 | (1.09)^3 | -24,605.55 | -24000 | (1.09)^3 | -31,080.70 |
| 1 | 6000 | (1.09)^2 | 7,128.60 | 8000 | (1.09)^2 | 9,504.80 | 10000 | (1.09)^2 | 11,881.00 |
| 2 | 6000 | (1.09) | 6,540.00 | 8000 | (1.09) | 8,720.00 | 10000 | (1.09) | 10,900.00 |
| 3 | 6000 | =1 | 6,000.00 | 8000 | =1 | 8,000.00 | 10000 | =1 | 10,000.00 |
| Future Value | -1,051.86 | 1,619.25 | 1,700.30 | ||||||
| Alternative C is best | |||||||||
| C. Annual Cost | |||||||||
| A | B | C | |||||||
| Cashflow | Disc Rate | Annual Cost | Cashflow | Disc Rate | Annual Cost | Cashflow | Disc Rate | Annual Cost | |
| Initial Cost | -16000 | 2.53 | -6,320.88 | -19000 | 2.53 | -7,506.04 | -24000 | 2.53 | -9,481.31 |
| Annual return | 6000 | 6,000.00 | 8000 | 8,000.00 | 10000 | 10,000.00 | |||
| Annual Cost | -320.88 | 493.96 | 518.69 | ||||||
| Alternative C is best | |||||||||
| Working: Annuity factor | |||||||||
| =[1-(1/(1+r)^t)]/r | |||||||||
| =[1-(1/(1+.09)^3)]/.09 | |||||||||
| 2.53 | |||||||||
| D. Rate of Return | |||||||||
| A | B | C | |||||||
| Initial Cost | -16000 | -19000 | -24000 | ||||||
| Yearly return | 6000 | 8000 | 10000 | ||||||
| Annual rate of return | 37.50% | 42.11% | 41.67% | ||||||
| Alternative B is best | |||||||||
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Please, show the formulas and
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