NPV and ANPV decisions Personal Finance Problem Richard and Linda Butler decide
ID: 2819096 • Letter: N
Question
NPV and ANPV decisions Personal Finance Problem Richard and Linda Butler decide that it is time to purchase a high-definition (HD) television because the technology has improved and prices have fallen over the past 3 years. From their research, they narrow their choices to two sets, the Samsung 64-inch plasma with 1080p capability and the Sony 64-inch plasma with 1080p features. The price of the Samsung is $2.335 and the Sony will cost 2,715. They expect to keep the Samsung for 3 years, if they buy the more expensive Sony unit, they will keep the Sony for 4 years. They expect sell the Samsung for $375 by the end of 3 years, they expect to sell the Sony for 355 at the end of the year 4. Richard and Linda estimate that the end-of-year entertainment benefits (ie, not going to movies or events and watching at home) from the Samsung to be $865 and for the Sony to be $980. Both sets can be viewed as quality units and are equally risky purchases. They estimate her opportunit cost to be 89% The Butlers wish to choose the better alternative rom a pure financial perspective. To perform this analysis they wish to do the following a. Determine the NPV of the Samsung HD plasma TV. b. Determine the ANPV of the Samsung HD plasma TV c. Determine the NPV of the Sony HD plasma TV d. Determine the ANPV of the Sony HD plasma TV e. Which set should the Butlers purchase and why? a. The NPV of the Samsung HD LCD is $14885Round to the nearest cent.)Explanation / Answer
a Determine the NPV of the samsung HD plasma TV Years Cashflow Discount factor @ 8.9% Present Value 0 ($2,335) 1 ($2,335.00) 1 $865 0.918274 $794.31 2 $865 0.843226 $729.39 3 $865 0.774313 $669.78 3 $375 0.774313 $290.37 $148.85 NPV of Samsung HD LCD is $ 149 b Annuity PV Factor = (1-(1+r)^-n/r 1-(1.089)^-3/0.089 Annualised NPV = $148.85/2.5358 $58.70 C Determine the NPV of the Sony HD plasma TV Years Cashflow Discount factor @ 8.9% Present Value 0 ($2,715) 1 ($2,715.00) 1 $980 0.918274 $899.91 2 $980 0.843226 $826.36 3 $980 0.774313 $758.83 4 $980 0.711031 $696.81 4 $355 0.711031 $252.42 $719.32 NPV of Samsung HD LCD is $ 719 d Annuity PV Factor = (1-(1+r)^-n/r 1-(1.089)^-4/0.089 Annualised NPV = $719.32/3.246844 $221.55 Based on annualised NPV, Sony HD plasma TV should be purchased since it has higher ANPV
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.