Two Action alternatives A paper mill considering two types of pollution control

Question

Two Action alternatives A paper mill considering two types of pollution control equipment. The firm wants a 12% rate of return on any avoidable increments of investment Which equipment should be purchased? Graphical Solutions for mutually exclusive alternatives. The Financial Advisor is a weekly column in the local newspaper. Assume you must answer the following question. "1 need a new car that I will keep for 5 years. I have three options. I can (A) pay $35,945 now. (B) make monthly payments for a 4% 5-year loan with 10000 down, or (C) make lease payment of $550 per month for the next 5 years. The lease option also requires a security deposit of SI 500. What should I do?" Assume that the number of miles driven matches the assumptions for the lease, and the vehicle's value after 5 years is $7000. Remember that lease payments are made at the beginning of the month, and the salvage value is received only if you own the vehicle. Develop the CFO for each option.

Explanation / Answer

Neutralization Percentage Initial cost Annal Chem Cost Annuity factor Present Value Salvage Value Net Present Vlaue 0% 700000 40000 5 200000 -175000 725000 10% 700000 40000 3.790787 151631.5 -175000 676631.5 20% 700000 40000 2.990612 119624.5 -175000 644624.5 30% 700000 40000 2.43557 97422.79 -175000 622422.8 40% 700000 40000 2.035164 81406.56 -175000 606406.6 50% 700000 40000 1.736626 69465.02 -175000 594465 60% 700000 40000 1.507721 60308.84 -175000 585308.8 70% 700000 40000 1.327958 53118.31 -175000 578118.3 80% 700000 40000 1.183847 47353.89 -175000 572353.9 90% 700000 40000 1.066238 42649.51 -175000 567649.5 100% 700000 40000 0.96875 38750 -175000 563750 Precipitation Percentage Initial cost Annal Chem Cost Annuity factor Present Value Salvage Value Net Present Vlaue 0% 500000 110000 5 550000 -125000 925000 10% 500000 110000 3.790787 416986.5 -125000 791986.5 20% 500000 110000 2.990612 328967.3 -125000 703967.3 30% 500000 110000 2.43557 267912.7 -125000 642912.7 40% 500000 110000 2.035164 223868 -125000 598868 50% 500000 110000 1.736626 191028.8 -125000 566028.8 60% 500000 110000 1.507721 165849.3 -125000 540849.3 70% 500000 110000 1.327958 146075.3 -125000 521075.3 80% 500000 110000 1.183847 130223.2 -125000 505223.2 90% 500000 110000 1.066238 117286.1 -125000 492286.1 100% 500000 110000 0.96875 106562.5 -125000 481562.5

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