Project 1,2,3 with a lives of 5 years are being considered with cash flow estima
ID: 2486863 • Letter: P
Question
Project 1,2,3 with a lives of 5 years are being considered with cash flow estimated to be as follows Suppose that Project 1 and 3 are mutually exclusive, project 2 is contingent on project 1. The budget limit is $180,000. Develop the matrix of investment alternatives, indicate which one is not feasible, and given reason for the infeasibility Develop the composite cash flows for the feasible alternatives Suppose the MARR us 10%, determine the best alternative using Present Worth on total investment.Explanation / Answer
1)
Reasons for infeasibility:
1) Project 1 & Project 3 cannot be chosen simultaneiously as they are mutually exclusive means choice of one signifies the rejection of the other.
2) Project 2 and project 3 cannot be chosen as Project 2 is contingent upon project 1 which is mutually exclusive to Project 3.
2)
3)
Present Worth of Project 1
= $20000 x PVIFA (10%, 5) - $70000
= $20000 x 3.79 - $70000 = $5800
Present worth of Project 2
= $15000 x PVIFA (10%, 5) + $10000 x PVIF (10%, 5) - $40000
= $15000 x 3.79 + $10000 x 0.621 - $40000 = $ 23060
Present worth of Project 3
= $30000 x PVIFA (10%, 5) + $15000 x PVIF (10%, 5) - $100000
= $30000 x 3.79 + $15000 x 0.621 - $100000 = $10640 = $23015
Decision: Project 1 & 2 should be chosen.
Alternatives Projects Possible Combinations Project 1 Project 2 Project 3 1 0 0 0 None 2 1 0 0 Project 1 3 0 0 1 Project 3 4 1 1 0 Project 1 & 2Related Questions
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