Question

7. Compare the following alternatives using a method of your choice. # Year Alternative Alternative B 0 -2,500 -1000 1 550 35

Solve & Draw Cash Flow Diagram (assume a rate of 2.75%)

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Answer #1

Discount rate = 2.75%

Cash flow diagram Alternative A outflow Inflows 0 1 2 3 4 5 6 7 8 -2500 550 500 450 500 800 200 300 100

NPV 550 500 450 5oo 800 + (1 + 0.0275) (1+0.0275) (1+0.0275) (1+0.0275) (1+0.0275) + 200 300 + (1+ 0.0275) (+ 0.0275) (1+0.0

Alternative B

Alternative B outflow Inflows 0 1 2 3 4 5 6 7 8 -1000 350 350 500 -500 300 250 300 0NPV - 350 350 500 500 + 300 (1 + 0.0275) + (1 + 0.0275) (1+0.02753 (1+0.0275) (1+0.0275) 250 + 300 (1+ 0.0275) (+0.0275) 8 (1

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