A business has $35,000 available to invest. Use a PW analysis. MARR = 6% Life =

ID: 1205261 • Letter: A

Question

A business has $35,000 available to invest. Use a PW analysis. MARR = 6% Life = 3 years.

Investment A: Initial investment = $22,500. Is expected to produce a MONTHLY revenue of $1,100

Investment B: Initial investment = $15,000. Is expected to produce a MONTHLY revenue of $1,000

Investment C: Initial investment = $11,000. Is expected to produce a MONTHLY revenue of $750

Find the PW of each bundle that had an initial investment less than the maximum expenditure allowed ($35,000).

Add up all the PW values you just found and report the number as your answer.

Monthly MARR = 6% / 12 = 0.5% per month

Number of months = 3 x 12 = 36

PW, inv A ($) = - 22,500 + 1,100 x PVIFA(0.5%, 36) = - 22,500 + 1,100 x 32.8710

= - 22,500 + 36,158 = 13,658

PW, Inv B ($) = - 15,000 + 1,000 x PVIFA(0.5%, 36) = - 15,000 + 1,000 x 32.8710

= - 15,000 + 32,871 = 17,871

PW, Inv C ($) = - 11,000 + 750 x PVIFA(0.5%, 36) = - 15,000 + 750 x 32.8710 = - 11,000 + 24,653

= 13,653

B has highest PW, followed by A & C.

B requires $15,000. Remaining budget = $(35,000 - 15,000) = $20,000

Only C can be chosen with this budget.

Bundle (A + C) = $26,000

Bundle (B + C) = $33,500

So, there are only 2 bundles not exceeding $35,000.

(2)

PW, Bundle (A + C) ($) = 13,658 + 13,653 = 27,311

PW, Bundle (B + C) ($) = 17,871 + 13,653 = 31,524

Total PW ($) = 27,311 + 31,524 = 58,835

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