Question

Two types of buildings are being considered for a new project. The following table provides the estimates prepared for each type of building. if the interest rate is 9%, determine the net present worth for both buildings A amd B.

description. building A. Building B.

initial. $60,000. $200,000

estimated life. 15 years. 25 years

salvage value. $0. $50,000

annual disbursememnt. $11,000. $5,000

(20 pts) Two types of buildings are being considered for a new project. The following table provides the estimates prepared for each type of building. If the interest rate is 9%, determine the nee present worth for both Buildings A and B. Be sure to select the TWO closest answers. Description Building A Building B -Initial cost $60,000 $200,000 Estimated life 15 yrs 25 yrs Salvage value $0 $50.000 Annual Disbursements $11,000 $5,000 Select one or more a.-$274,814.00 b. -$320,853.27 C-3227,672.00 d.-5106,493.58 e-5204,609.30

Answer 1

NPW of building A = -60000 - 11000 * (P/A, 9%,75) - 60000 * [(P/F, 9%,15) + (P/F, 9%,30) +  (P/F, 9%,45) +  (P/F, 9%,65)]  

= -60000 - 11000 * 11.093782 - 60000 * [0.274538 + 0.075371 + 0.020692 + 0.005681]

= -204608.52 ~ -204609 (select last option)

NPW of building B = -200000 - 5000 * (P/A, 9%,75) - (200000 - 50000) * [(P/F, 9%,25) + (P/F, 9%,50)] + 50000 * (P/F, 9%,75)
= -200000 - 5000 * (P/A, 9%,75) - 150000 * [(P/F, 9%,25) + (P/F, 9%,50)] + 50000 * (P/F, 9%,75)

= -200000 - 5000 * 11.093782 - 150000 * [0.115968 + 0.013449] + 50000 * 0.001560

= -274803.48 ~ -274803 (closest to first option ie. -274814)