Three mutually exclusive contracts a, b, and C are presented. Contract A is a 2

Question

Three mutually exclusive contracts a, b, and C are presented. Contract A is a 2 year project and costs $40,000 at beginning of each year. Contract ? is a 3 years contract and requires $20,000 payment every 6 month beginning now(6 equal payments total each cycle). Contract C is a 6 year contract and requires S90,000 now and $145,000 four year from now. Assume all contracts can be renewed at the same conditions and an annual interest rate of 12%, compounded semiannually, using Present Worth Analysis: How much is the equivalent effective annual interest rate: What is the present worth of Project B(for 6 year period):

Explanation / Answer

1 sem 2 sem 3 sem 4 sem 5 sem 6 sem 7 sem 8 sem 9 sem A 40000 40000 B 20000 20000 20000 20000 20000 20000 C 90000 145000 1 5.83% (=+(1+0.12)^(1/2)-1) 2         98,873.81 (=+VNA(D7,D4:I4)) 3       214,506.29 (=+VNA(D7,D5:L5))

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