Year | Cashflow | PV factor 10% [1/(1+r)]^n | PV | |||
Aternative A | 0 | (50,000.00) | 1.000 | (50,000.00) | ||
Construction cost | 50,000.00 | 1 | 15,000.00 | 0.909 | 13,636.36 | |
Annual benefit | 15,000.00 | 2 | 15,000.00 | 0.826 | 12,396.69 | |
Life | 5 | 3 | 15,000.00 | 0.751 | 11,269.72 | |
Total PV factor 10% | 3.791 | 4 | 15,000.00 | 0.683 | 10,245.20 | |
5 | 15,000.00 | 0.621 | 9,313.82 | |||
Total | 3.791 | 6,861.80 | ||||
NPV of project= | 6,861.80 | |||||
Total PV factor 10%= | 3.791 | |||||
AW= | 1,810.13 |
Year | Cashflow | PV factor 10% [1/(1+r)]^n | PV | |||
Aternative B | 0 | (75,000.00) | 1.000 | (75,000.00) | ||
Construction cost | 75,000.00 | 1 | 18,000.00 | 0.909 | 16,363.64 | |
Annual benefit | 18,000.00 | 2 | 18,000.00 | 0.826 | 14,876.03 | |
Life | 6 | 3 | 18,000.00 | 0.751 | 13,523.67 | |
Total PV factor 10% | 4.355 | 4 | 18,000.00 | 0.683 | 12,294.24 | |
5 | 18,000.00 | 0.621 | 11,176.58 | |||
6 | 18,000.00 | 0.564 | 10,160.53 | |||
Total | 4.355 | 3,394.69 | ||||
NPV of project= | 3,394.69 | |||||
Total PV factor 10%= | 4.355 | |||||
AW= | 779.45 |
Year | Cashflow | PV factor 10% [1/(1+r)]^n | PV | |||
Aternative C | 0 | (95,000.00) | 1.000 | (95,000.00) | ||
Construction cost | 95,000.00 | 1 | 20,000.00 | 0.909 | 18,181.82 | |
Annual benefit | 20,000.00 | 2 | 20,000.00 | 0.826 | 16,528.93 | |
Life | 7 | 3 | 20,000.00 | 0.751 | 15,026.30 | |
Total PV factor 10% | 4.868 | 4 | 20,000.00 | 0.683 | 13,660.27 | |
5 | 20,000.00 | 0.621 | 12,418.43 | |||
6 | 20,000.00 | 0.564 | 11,289.48 | |||
7 | 20,000.00 | 0.513 | 10,263.16 | |||
Total | 4.868 | 2,368.38 | ||||
NPV of project= | 2,368.38 | |||||
Total PV factor 10%= | 4.868 | |||||
AW= | 486.48 |
IRR Aternative A | |||
Year | Cashflow | PV factor 15.24% [1/(1+r)]^n | PV |
0 | (50,000.00) | 1.000 | (50,000.00) |
1 | 15,000.00 | 0.868 | 13,016.54 |
2 | 15,000.00 | 0.753 | 11,295.35 |
3 | 15,000.00 | 0.653 | 9,801.76 |
4 | 15,000.00 | 0.567 | 8,505.67 |
5 | 15,000.00 | 0.492 | 7,380.96 |
NPV of project | (0.00) |
IRR Aternative B | |||
Year | Cashflow | PV factor 11.53% [1/(1+r)]^n | PV |
0 | (75,000.00) | 1.000 | (75,000.00) |
1 | 18,000.00 | 0.897 | 16,139.08 |
2 | 18,000.00 | 0.804 | 14,470.56 |
3 | 18,000.00 | 0.721 | 12,974.53 |
4 | 18,000.00 | 0.646 | 11,633.17 |
5 | 18,000.00 | 0.579 | 10,430.48 |
6 | 18,000.00 | 0.520 | 9,352.13 |
NPV of project | 0.00 |
IRR Aternative C | |||
Year | Cashflow | PV factor 10.75% [1/(1+r)]^n | PV |
0 | (95,000.00) | 1.000 | (95,000.00) |
1 | 20,000.00 | 0.903 | 18,058.15 |
2 | 20,000.00 | 0.815 | 16,304.84 |
3 | 20,000.00 | 0.736 | 14,721.77 |
4 | 20,000.00 | 0.665 | 13,292.40 |
5 | 20,000.00 | 0.600 | 12,001.81 |
6 | 20,000.00 | 0.542 | 10,836.52 |
7 | 20,000.00 | 0.489 | 9,784.38 |
NPV of project | (0.00) |
Alternative | NPV | AW | IRR |
A | 6,861.80 | 1,810.13 | 15.24% |
B | 3,394.69 | 779.45 | 11.53% |
C | 2,368.38 | 486.48 | 10.75% |
Since alternative A has better values than B and C considering NPV , AW and IRR, Project A should be selected |
4. After checking the feasibility of each alternative below, compare them using the Incremental IRR method...
4. Compare the following altemtives given a market rate of 3.45% per year and an inflation rate of 3% per year. Use first the B/C method to determine feasibility and then the incremental B/C method to determine the oprimum level of investment. Life yrs Alt A Construction Costs Annual Benefits S/yr 105,000 40,000 230,000 52.000 350.000 64,000 600,000 100,000 6