Question

 Question 5. (includes parts a and b below). You are planning to purchase new test equipment for your lab and narrowed the alternatives down to three with the cash flows stated below. The equipment's useful life is the same as the porject life, which is 10 years, and these are cost-based projects.

 a. (5 points) Use the NFV method to compare the alternatives. SOLVE THE PROBLEM BY, FIRST, FILLING OUT THE YELLOW

 TABLE BELOW, AND THEN CALCULATE EACH NPV IN THE BLUE CELLS (each NPV cell must show an appropriate Excel formula

 when clicked on. Similarly, if you need to make calculations in any other cell in the yellow table, that cell must include the formula you used - NOT just values). MAKE SURE TO SHOW YOUR WORK AND ONLY USE EXCEL FORMULAS! MAKE SURE

 YOUR WORK IS WELL ORGANIZED AND CLEARLY INDICATE THE RESULTS.

 b. (1 point) Which alternative would you choose and why, based on the FV method? Please choose one below by selecting that option and changing the text color to red.

 b1. Alternative A

 b2. Alternative B

 b3. Alternative C

 b4. Do nothing

Answer 1

a.)

Below Image Shows Computation of Net Present Value

Explanation :

• Present Value Factor is the Computed Using Present Value Formula 1/(1+rate)^period
• Present Value of each year of each alternative is multiply of Present Value Factor and Amount of that Year
• Here the Flow of are all negative except because only at the end alternate is sold then only cash inflow all other are outflow.
• Net Present Value is Difference between Present Value of Cash Inflows and Present Value Outflows.

b.)

Accept Alternative C

Explanation : The given project is a cost based project that is Net Present Value of each case is negative. And project with maximum Net Present Value or we can least negative value is the best because it has the lowest cost. In this case Alternative C have minimum cost as compared to other alternatives