Answer number 14 lems 12 through 14 are based on the following informations cons
ID: 1120378 • Letter: A
Question
Answer number 14
lems 12 through 14 are based on the following informations consider the following four investment alternatives (A, B, C and D). Interest rate Table Cash Flow (S): s 10%; 0 -$2000 $400 $500 $600 $700 $800 $4000 $3000 $2000 $1000 $500 $500 $3000 $2000 $4000 S2000 $4000 $2000 $9000 2 3 4. S2000 $4000 $8000 $8000 $4000 12. Equivalent annual worth of Alternative A is: a. $53 b. $200 c. $250 d. $70 13. Equivalent annual worth of Alternative C is: a. $1400 b. $1046 c. -$1045 d. $100 14. The best alternative is: a. A b. B c. C d. DExplanation / Answer
We start with calculation of equivalent uniform annual of alternative A.
EUAW of A = EUAB - EUAC = [{400(P/F, 10%,1) (A/P,10%,5)} + {500(P/F,10%,2) (A/P,10%,5)} + {600(P/F,10%,3)(A/P,10%,5)} + {700(P/F,10%,4)(A/P,10%,5)} + {800(P/F,10%,5)(A/P,10%,5)}] - [2000(A/P,10%,5)] = [(400*0.9091*0.2638) + (500*0.8264*0.2638) + (600*0.7513*0.2638) + (700*0.6830*0.2638) +(800*0.6209*0.2638)] - [2000*0.2638] = [95.92 + 109 + 118.91 + 126.12 + 131.03] - 527.6 = 580.98 - 527.60 = 581 - 528 = 53
So Equivalent uniform annual worth of A is $ 53. Ans is A.
EUAW of C = EUAB - EUAC = [{4000(P/F,10%,2)(A/P,10%,5)} + {2000(P/F,10%,3)(A/P,10%,5)} + {4000(P/F,10%,4)(A/P,10%,5)} + {2000(P/F,10%,5)(A/P,10%,5)}] - [ {3000(A/P,10%,5)} + {2000(P/F,10%,1)(A/P,10%,5)}] = [(872 +396.38 + 720.70 + 327.58 ) - [(791.4 + 479.64)] = 2316.66 - 1271.04 = 2317 - 1271 = 1046
Therefore EUAW of C is $1046 . Ans is b.
Now to calculate which alternative is best we need to calculate of EUAW of other two alternatve i.e alternative B and D.
EUAW of B = EUAB - EUAC = [ {3000(P/F,10,1)(A/P,10,5)} + {2000(P/F,10,2)(A/P,10%,5)}+ {1000(P/F,10,3)(A/P,10%,5)} + {500(P/F,10%,4)(A/P,10%,5)} + {500(P/F,10,5)(A/P,10,5)}] - [ 4000(A/P,10%,5)] = [(719.46 + 436 + 198.19 + 90.08 + 81.89)] - [4000*0.2638] = 1525.62 - 1055.2 = 1526 - 1055 = 471 .Therefore the EUAW of B= $471
EUAW of D = EUAB - EUAC = [ 479.64 + 872 + 1585.52 + 1041.40 + 655.16 ] - [ 2374.20] = 4633.72 - 2374.20 = 4634 - 2374 = 2260 . Therefore EUAW of D is $2260 .
By comparing all the 4 alternatives we can say EUAW of D is higher than other 3. So the best alternative is D.