Consider the cash flows in the table below for the following investment projects

Question

Consider the cash flows in the table below for the following investment projects (MARR-15% each project at 15% and determine the acceptability of each project. Determine the annual equivalent worth for EE click the icon to view the data for cash flows. Click the icon to view the interest factors for discrete compounding when MARR-15% per year. The annual equivalent worth of Project A is s(Round to the nearest dollar) More Info Project A -$3.500 $1.500 $1,800 $1,000 $600 Project's Cash Flow Project B -$4,000 $1,600 $1,500 $1,500 $1,500 Project C - $6,500 $2.000 $2,000 2.500 $2.500

Explanation / Answer

C = r (NPV) / 1 - (1 + r)-n where, C - Equivalent Annuity Cash Flow, NPV - Net Present Value i.e. NPV of resepctive project, r - Rate Per Period i.e. 15%, n - Number of Periods i.e 4 years

Equivalent Annuity Cash Flow/Worth of project C is negative we will not accept it

We can accept Project A & Prject B both since Equivalent Annuity Cash Flow/Worth of both is positve

As Equivalent Annuity Cash Flow/Worth of project B is more than project A so we will accept project B

1 2 1*2 3 1*3 4 1*4 Years Discount factor @15% Project A PV of Cash flows Project A Project B PV of Cash flows Project B Project C PV of Cash flows Project C 0 1.00 -3500.00 -3500.00 -4000.00 -4000.00 -6500.00 -6500.00 1 0.87 1500.00 1304.35 1600.00 1391.30 2000.00 1739.13 2 0.76 1800.00 1361.06 1500.00 1134.22 2000.00 1512.29 3 0.66 1000.00 657.52 1500.00 986.27 2500.00 1643.79 4 0.57 600.00 343.05 1500.00 857.63 2500.00 1429.38 Net Preset Value 165.97 369.42 -175.41

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