Given the cash flows as shown in the table below for four mutually exclusive alt
ID: 1092408 • Letter: G
Question
Given the cash flows as shown in the table below for four mutually exclusive alternatives.
Year
Cash Flow in $
Alt. A
Alt. B
Alt. C
Alt. D
0
-1,000
-23,000
-7,000
-10,000
1
100
3,000
0
2,000
2
200
3,000
1,000
2,000
3
300
3,000
2,000
2,000
4
400
3,000
3,000
2,000
5
500
15,000
4,000
6,000
Determine the alternative that maximizes the Net Future worth (NFW) for a MARR of 8%
Year
Cash Flow in $
Alt. A
Alt. B
Alt. C
Alt. D
0
-1,000
-23,000
-7,000
-10,000
1
100
3,000
0
2,000
2
200
3,000
1,000
2,000
3
300
3,000
2,000
2,000
4
400
3,000
3,000
2,000
5
500
15,000
4,000
6,000
Explanation / Answer
ALT.A
NFW = -1000 + 100/1.08 + 200/1.08^2 + 300/1.08^3 + 400/1.08^4 + 500/1.08^5 = 136.51
ALT.B
NFW = -23000 + 3000/1.08 + 3000/1.08^2 + 3000/1.08^3 + 3000/1.08^4 + 15000/1.08^5 = -2854.87
ALT.C
NFW = -7000 + 0/1.08 + 1000/1.08^2 + 2000/1.08^3 + 3000/1.08^4 + 4000/1.08^5 = 372.42
ALT.D
NFW = -10000 + 2000/1.08 + 2000/1.08^2 + 2000/1.08^3 + 2000/1.08^4 + 6000/1.08^5 = 707.75
SO Alternative D maximizes NFW
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