Question

In: Accounting

Consider the following investment opportunities. Period A B C D 0 -12,500 -11,000 12,500 -13,000 1...

Consider the following investment opportunities.

Period	A	B	C	D
0	-12,500	-11,000	12,500	-13,000
1	5,400	-3,000	-7,000	5,500
2	14,400	21,000	-2,000	5,500
3	7,200	13,000	4,000	8,500

a) Compute the present worth of each investment, assuming a MARR of 15%

b) Compute the future worth of each investment, assuming a MARR of 15%

c) Which project or projects are acceptable?

Expert Solution

a) Investment A

Period	0	1	2	3
Cashflow	-12500	5400	14400	7200
DF	1	0.87	0.756	0.658
Present Value	-12500	4698	10886	4738

Net Present Worth = 8322

Investment B

Period	0	1	2	3
Cashflow	-11000	-3000	21000	13000
DF	1	0.87	0.756	0.658
PV	-11000	-2610	15876	8554

Net Present Worth = 10820

Investment C

Period	0	1	2	3
CF	12500	-7000	-2000	4000
DF	1	0.87	0.756	0.658
PV	12500	-6090	-1512	2632

Net present worth = 7530

Investment D

Period	0	1	2	3
CF	-13000	5500	5500	8500
DF	1	0.87	0.756	0.658
PV	-13000	4785	4158	5593

Net present worth = 1536

b) Investment A

Period	0	1	2	3
Cashflow	-12500	5400	14400	7200
Compounding	1.15^3	1.15^2	1.15^1	1
Future Value	-19011	7142	16560	7200

Net Future Worth = 11891

Investment B

Period	0	1	2	3
Cashflow	-11000	-3000	21000	13000
Compounding	1.15^3	1.15^2	1.15^1	1
FV	-16730	-3968	31500	13000

Net Future Worth = 23802

Investment C

Period	0	1	2	3
CF	12500	-7000	-2000	4000
Compounding	1.15^3	1.15^2	1.15	1
FV	19011	-9258	-2300	4000

Net future worth = 11453

Investment D

Period	0	1	2	3
CF	-13000	5500	5500	8500
Compounding	1.15^3	1.15^2	1.15	1
FV	-19771	7274	6325	8500

Net future worth = 2328

c) All 4 projects can be acceptable because all projects are having positive Present worth and Future worth.

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