Year 0 1 2 3 4 5 Cash flow for Alt. A($) -1K 200 200 200 200 700 Cash Flow for A
ID: 1091342 • Letter: Y
Question
Year
0
1
2
3
4
5
Cash flow for Alt. A($)
-1K
200
200
200
200
700
Cash Flow for Alt. B($)
-2K
500
500
500
500
600
Select the most appropriate answer from the choices below. No partial credit. Show all work, no credit if work not shown (not a guessing game).
A. 1,000 = 300(P/A, i, 5) +100(P/F, i, 5)
B. 1,000 = 300(P/A, i, 5) - 400(P/F, i, 5)
C. 1,000 = 300(P/A, i, 5) +200(P/F, i, 5)
D. 1,000 = 300(P/A, i, 5) - 100(P/F, i, 5)
Show your work please !!!!!!!!!!
Year
0
1
2
3
4
5
Cash flow for Alt. A($)
-1K
200
200
200
200
700
Cash Flow for Alt. B($)
-2K
500
500
500
500
600
Explanation / Answer
D. 1,000 = 300(P/A, i, 5) - 100(P/F, i, 5)
because
Alt B - ALt A
difference in intial investment = 2000-1000 = $1000
difference in annual cash flow = 500-200 = $300
difference in cash flow of year 5 = 600-700 = -$100
so,
i is calculated using increamental rate of return equation
(2000-1000) = (500-200)*(P/A, i, 5) +(600-700)*(P/F, i, 5)
1,000 = 300(P/A, i, 5)-100(P/F, i, 5)
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