Question 3 1 pts Bill just won the sweepstakes in Tennessee! He has the option o

Question

Question 3 1 pts Bill just won the sweepstakes in Tennessee! He has the option of either receiving a check right now for $120,000 or receiving a check for $45,000 each year for three years. Bill would receive the first check for $45,000 immediately. At what interest rate would Bill have to invest his winnings for him to be indifferent as to how he receives his winnings? Choose the closest answer. 12.94% @ 20.05% 21.61% 23.34% 1 pts Question 4 Three mutually exclusive alternatives are being considered for the production equipment at a tisue paper factory, The estimated cash fows for each alternative are given below All costs are in thousands which equipment alternative, if any, should be selected? The firm's MARR is 20% per year please state your assumptions. Aneaual revenues Annual cests 3,2007,000 2,100 1,000 5,100 4,000 Matket vahue at end of 100 Useful lfe Alternative A O Alternative C

Explanation / Answer

Ans 3) for being indifferent in the both case Bill need to find rate which will make the yearly payment equal to $120000.

$120000 = $45000 + $45000/(1+r) + $45000/(1+r)^2

while solving the above equation we will get the value for r is 13.06% so the closest answer will be 12.94%.

Ans 4) We will choose that project that will be having maximum net present value.

While analyzing the NPV of all project we can say that equipment Alternative B has been selected because it is giving maximum net present value, its value addition is highest i.e., $8445.25

20% Project A 0 1 2 3 4 5 Capital Investment -2000 Annual Revenue 3200 3200 3200 3200 3200 Annual Cost -2100 -2100 -2100 -2100 -2100 Market value at the end of useful life 100 Cashflow -2000 1100 1100 1100 1100 1200 Present Vlaue -2000.00 916.67 763.89 636.57 530.48 482.25 NPV 1329.86 Project B 0 1 2 3 4 5 6 7 8 9 10 Capital Investment -4200 Annual Revenue 7000 7000 7000 7000 7000 7000 7000 7000 7000 7000 Annual Cost -4000 -4000 -4000 -4000 -4000 -4000 -4000 -4000 -4000 -4000 Market value at the end of useful life 420 Cashflow -4200 3000 3000 3000 3000 3000 3000 3000 3000 3000 3420 Present Vlaue -4200.00 2500.00 2083.33 1736.11 1446.76 1205.63 1004.69 837.24 697.70 581.42 552.35 NPV 8445.25 Project C 0 1 2 3 4 5 6 7 8 9 10 Capital Investment -7000 Annual Revenue 8000 8000 8000 8000 8000 8000 8000 8000 8000 8000 Annual Cost -5100 -5100 -5100 -5100 -5100 -5100 -5100 -5100 -5100 -5100 Market value at the end of useful life 600 Cashflow -7000 2900 2900 2900 2900 2900 2900 2900 2900 2900 3500 Present Vlaue -7000.00 2416.67 2013.89 1678.24 1398.53 1165.44 971.20 809.34 674.45 562.04 565.27 NPV 5255.07

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.