Question

2. Angela works for a construction company that is bidding on several independent projects A-D. Use present worth analysis to determine which of the projects or combination of projects, if any, should be recommended. The company’s MARR is 7% and the alternatives’ financial data is in Table 1. below. The company’s budget dedicated to these potential projects is limited to $12,000. In your analysis, list all potential bundles of the projects to be considered along with their present worth by filling in a table with the format of Table 2 below. SHOW CONVERSION FACTORS AS WELL!

Table 1. Data

Project	Initial investment ($)	Annual Net Cash Flow ($)	Life (years)
A	12,000	2,000	7
B	6,000	3,000	4
C	5,000	2,500	7
D	2,000	1,500	8

Table 2. Solution Format

Bundle	Project	Total Initial Investment ($)	PW of Bundle at 7% ($)
1
2
3
…etc.

Answer 1

1]	The NPVs are calculated below:
	Project	Initial Investment	Annual Net Cash Flow	Life in Years	PVIFA at 7%	PV of Annual Cash Inflows	NPV
	A	$            12,000	$              2,000	7	5.3893	$        10,779	$        (1,221)
	B	$              6,000	$              3,000	4	3.3872	$        10,162	$          4,162
	C	$              5,000	$              2,500	7	5.3893	$        13,473	$          8,473
	D	$              2,000	$              1,500	8	5.9713	$           8,957	$          6,957
	Project A is to be rejected, as it has negative NPV.
	Other three projects are acceptable as they have positive NPVs.
2]	Bundle	Projects	Initial Investment	PW of Bundle	Unutilized Budget
	1	B,C	$            11,000	$               12,635	$            1,000
	2	B,D	$              8,000	$               11,119	$            4,000
	3	C,D	$              7,000	$               15,430	$            5,000
	DECISION:
	The bundle 3 gives the maximum PW. Hence, it is to be chosen. However, the
	unutilized budget is highest for it,