Question

Problem (3): Consider the following two mutually exclusive projects, which have unequal service lives 6 N (years) Project 1 Amounts 1000 200 200200 Project 2 Amounts1500 100 200 300 400 -500 -600 Given that interest rate equals 10%, using minimum no. of factors, determine which project should be selected using the Future worth analysis

Answer 1

Answer: Project-1's future worth at 10% interest rate Project-2's future worth at 10% interest rate -$2,652.68 | -$5,144.51 As negative future worth of Project-1 amounts is less than negative future worth of Project-2 amounts, firm must choose Project-1 Workings: Project-1 Amounts Future value factor @ 10% (b) Furture worth Year-0 $1,000 1.77156 Year-1 $200 1.61051 Year-2 $200 1.46410 10-$292.82 Year-3 $200 1.33100 $266.20 Year-4 Year-5 Year-6 $0 1.21000 1.10000 1.00000 [Ref: NOTE] $0 $0 (a) x (b)$1,771.56 $0.00 $0.00 $0.00 Project-1's future worth $2,652.68 [Sum of future worth of amounts from year-0 thru 6] - Project-2 Amounts Future value factor @ 10% (b) Furture worth Year-0 1,500 1.77156 Year-1 $100 1.61051 Year-2 -$200 1.46410 $161.05292.82 Year-3 $300 1.33100 $399.30 Year-4 Year-5 Year-6 $400 1.21000 1.10000 1.00000 [Ref: NOTE] $500 $600 (a) x (b)2,657.34 $484.00-$550.00-$600.00 Project-2's future worth 「 NOTE: FV factor@ 10%-(1+10%)6; (1+10%) ; (1+10%) ; (1+10%), (1+10%) ; (1+10%)!; (1+10%)" $5,144.51 [Sum of future worth of amounts from year-0 thru 6]

EXCEL SCREENSHOT: 1 Project-1 2 Amounts 3 Future value factor @ 10% (b) 4 Furture worth Year-0 Year-1 Year-2 Year-3 Year-4 Year-5 Year-6 1,000 $200 $200 $200 $0 $0 S0 a) x (b -B2 B3 -C2 C3 -D2 D3 -E2 E3 -F2 F3 -G2 G3 -H2*H3 6 Project-1's future worth -SUM(B4:H4) [Sum of future worth of amounts from year-0 thru 6] 8 Project-2 9 Amounts 10 Future value factor @ 10% (b) 11 Furture worth 12 13 Project-2's future worth Year-0 Year-1 Year-2 Year-3 Year-4 Year-5 Year-6 $1,500 $100 $200 $300 $500 $600 a) x (b B9 B10 -C9 C10 -D9*D10 -E9 E10 F9 F10 -G9 G10 -H9 H10 -SUM(B11:H11) [Sum of future worth of amounts from year-0 thru 6]