Suppose that, for a certain potential investment project, the optimistic, most l
ID: 1203249 • Letter: S
Question
Suppose that, for a certain potential investment project, the optimistic, most likely, and pessimistic estimates are shown in accompanying table.
Optimistic
Most likely
Pessimistic
Capitalinvestment
$90,000
$100,000
$120,000
Useful life
12 years
10 years
6 years
Market value
$30,000
$20,000
$0
Net annual cash flow
$35,000
$30,000
$20,000
MARR (peryear)
10%
10%
10%
a. Assuming all other factors to be at their most likely values, what is the AW of the combination of Pessimistic Useful life and Most likely Net annual cash flow?
Optimistic
Most likely
Pessimistic
Capitalinvestment
$90,000
$100,000
$120,000
Useful life
12 years
10 years
6 years
Market value
$30,000
$20,000
$0
Net annual cash flow
$35,000
$30,000
$20,000
MARR (peryear)
10%
10%
10%
Explanation / Answer
Answer:
Annual Worth (AW):
AWO = 90,000(A/P, 10%, 12) + 30,000(A/F, 10%, 12) + 35,000
= 12,600 + 1,380 + 35,000
= $48,980
AWML = 100,000(A/P, 10%, 10) + 20,000(A/F, 10%, 10) + 30,000
= 15,000 + 1,200 + 30,000
= $46,200
AWP = 120,000(A/P, 10%, 6) + 20,000
= 26,400 + 20,000
= $46,400
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