Question
In: Accounting
Consider the two investments shown below, only one of which can be chosen. They are one-shot...
Consider the two investments shown below, only one of which can be chosen. They are one-shot investments. Calculate AW2-1 assuming 13.2305 interest rate.
|
EOY |
Alternative 1 |
Alternative 2 |
|
0 |
- 20,286 |
- 40,370 |
|
1 |
3,741 |
1,000 |
|
2 |
3,741 |
1,800 |
|
3 |
3,741 |
2,600 |
|
4 |
3,741 |
3,400 |
|
5 |
3,741 |
4,200 |
|
6 |
5,000 |
|
|
7 |
5,800 |
|
|
8 |
6,600 |
Solutions
Expert Solution
| Step Number :1 | Year |
Return on Investment A |
PV Factor (13.2305%) B |
Present Value A * B |
||||
| 1 | 3,741 | 0.8832 | 3304.0512 | |||||
| 2 | 3,741 | 0.7800 | 2917.98 | |||||
| 3 | 3,741 | 0.6888 | 2576.8008 | |||||
| 4 | 3,741 | 0.6083 | 2275.6503 | |||||
| 5 | 3,741 | 0.5373 | 2010.0393 | |||||
| Total Return on Investment | 3.4976 | 13084.5216 | ||||||
| Less: Total Investment | 1 | -20286 | ||||||
| Net NPV | -7201.4784 | |||||||
| Step Number :1 | Year |
Return on Investment A |
PV Factor (13.2305%) B |
Present Value A * B |
||||
| 1 | 1,000 | 0.8832 | 883.2 | |||||
| 2 | 1,800 | 0.7800 | 1404 | |||||
| 3 | 2,600 | 0.6888 | 1790.88 | |||||
| 4 | 3,400 | 0.6083 | 2068.22 | |||||
| 5 | 4,200 | 0.5373 | 2256.66 | |||||
| 6 | 5,000 | 0.4745 | 2372.5 | |||||
| 7 | 5,800 | 0.4190 | 2430.2 | |||||
| 8 | 6,600 | 0.3700 | 2442 | |||||
| Total Return on Investment | 4.7611 | 15647.66 | ||||||
| Less: Total Investment | 1 | -40370 | ||||||
| Net NPV | -24722.34 | |||||||
| Note: | Since Both the project have Inequal Life we should take Decision on basis of Annual NPV | |||||||
| Step Number : 3 | Annual NPV of Plan 1 | |||||||
| Annual NPV = NPV / Cumulative PV Factor | ||||||||
| Annaul NPV = -7201.4784 / 3.4976 | ||||||||
| Annual NPV = -2,058.9771 | ||||||||
| Step Number : 4 | Annual NPV of Plan 2 | |||||||
| Annual NPV = NPV / Cumulative PV Factor | ||||||||
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