Question

In: Finance

Given the following two mutually exclusive project, calculate the equivalent annual annuity for Project B. Assume...

Given the following two mutually exclusive project, calculate the equivalent annual annuity for Project B. Assume a required rate of return of 12%. (Round to 2 decimals)

Year Project A Project B
0 -500 -600
1 320 300
2 320 300
3 320 300
4 300

Solutions

Expert Solution

Discount rate 12.0000%
Cash flows Year Discounted CF= cash flows/(1+rate)^year Cumulative cash flow
                 (600.00) 0                                 (600.00)                             (600.00)
                 300.000 1                                   267.86                             (332.14)
                 300.000 2                                   239.16                                (92.98)
                 300.000 3                                   213.53                                120.55
                 300.000 4                                   190.66                                311.20

NPV of B = 311.20

PV = 311.20, FV = 0, N = 4, rate = 12%

use PMT function in Excel

EAA = 102.46


Related Solutions

The following data are given for two mutually exclusive project proposals: (PhP) Project A Project B...
The following data are given for two mutually exclusive project proposals: (PhP) Project A Project B Initial Investment 50,000.00 60,000.00 Annual Net Cash Inflows: Year 1 15,000.00 30,000.00 Year 2 14,000.00 14,000.00 Year 3 12,000.00 10,000.00 Year 4 12,000.00 10,000.00 Year 5 12,000.00 10,000.00 Assuming that the firm’s required rate of return is 20%, compute the following: a) Net Present Value b) Payback Period Which project would you undertake? Justify
QUESTION TWO [30] The following 2 mutually exclusive projects (Project A and Project B) are available...
QUESTION TWO [30] The following 2 mutually exclusive projects (Project A and Project B) are available to Simonsbosch Farm. They are producers of Rooi Bos tea. The initial cash outlay and cash flows are shown below and Simonsbosch will use straight line depreciation over each of the assets 4 year life and there will be no residual value on either investment. Years Cash Flows (A) Cash Flows (B) 0 (Investment) -240 000 -90 000 1 28 000 40 000 2...
You are considering the following two mutually exclusive projects. YEAR             PROJECT (A)         PROJECT (B)        0&
You are considering the following two mutually exclusive projects. YEAR             PROJECT (A)         PROJECT (B)        0                  -$35,000                  -$35,000     1                     22,000                     13,000     2                     20,000                     21,000     3                     13,000                     22,000 What is the internal rate of return of PROJECT A?
You are considering the following two mutually exclusive projects. YEAR             PROJECT (A)         PROJECT (B)        0&
You are considering the following two mutually exclusive projects. YEAR             PROJECT (A)         PROJECT (B)        0                  -$35,000                  -$35,000     1                     22,000                     13,000     2                     20,000                     21,000     3                     13,000                     22,000 What is the crossover point?
Consider the following cash flows on two mutually exclusive projects: Year Project A Project B 0...
Consider the following cash flows on two mutually exclusive projects: Year Project A Project B 0   –$ 68,000   –$ 83,000 1 48,000 47,000 2 43,000 56,000 3 38,000 59,000 The cash flows of Project A are expressed in real terms, whereas those of Project B are expressed in nominal terms. The appropriate nominal discount rate is 11 percent and the inflation rate is 5 percent. Calculate the NPV for each project. (Do not round intermediate calculations and round your answers...
You are considering the following two mutually exclusive projects. Project A Project B Year 0 -$10,000...
You are considering the following two mutually exclusive projects. Project A Project B Year 0 -$10,000 -$20,000 Year 1 $ 3,000 $ 5,000 Year 2 $ 8,000 $ 7,000 Year 3 $ 4,000 $12,000 Year 4 $ 2,000 $10,000 The required return on each project is 12 percent. Which project should you accept and what is the best reason for that decision? a. Project B; because it has the higher net present value b. Project A; because it pays back...
Mutually exclusive investments. The following are cash flows of two projects. Year  Project A Project B 0...
Mutually exclusive investments. The following are cash flows of two projects. Year  Project A Project B 0 $ (200) $ (200) 1 80 100 2 80 100 3 80 100 4 80 Calculate the NPV for both projects if the discount rate is 11%(Do not intermediate calculations.Round your answer to 2 decimal places) Suppose that you can only choose one of the these projects. Which would you choose ? project A Project B Neither
Consider the following cash flows on two mutually exclusive projects: Year Project A Project B 0...
Consider the following cash flows on two mutually exclusive projects: Year Project A Project B 0 67000 82000 1 47000 46000 2 42000 55000 3 37000 58000 The cash flows of Project A are expressed in real terms while those of Project B are expressed in nominal terms. The appropriate nominal discount rate is 10 percent and the inflation rate is 2 percent.    Calculate the NPV for each project. (Do not round intermediate calculations and round your answers to...
Consider the following three mutually exclusive investment project alternatives (A, B, C). Use the annual worth...
Consider the following three mutually exclusive investment project alternatives (A, B, C). Use the annual worth analysis (AW) to determine the best investment alternative assuming MARR=15%. Project name:                                        A                    B                    C Cash Flow (Year 0):                                    -200,000        -300,000        -400,000 Cash Flow (Year 1-N)                     +150,000       +180,000       +150,000 Salvage value at year N:                +30,000         +50,000          +60,000 Project Life (N):                                    2 years         3 years          6 years
find the equivalent annual annuity of the following series: a project is expected to generate $15034...
find the equivalent annual annuity of the following series: a project is expected to generate $15034 this year (end of year) and is expected to grow every year for 20years by $8043. (note: no units, 4 decimal points, 1% threshold)
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT