PROBLEM 4.6
a SOLUTION USING INDIVIDUAL CASH FLOWS AND P|F FACTORS
5.00%
EOY + CF – CF NET CF (P|F i%,n) PW OF CF
0 -$135,000.00 -$135,000.00 1.00000 -$135,000.00
1$12,000.00 -$2,000.00 $10,000.00 0.95238 $9,523.81
2$12,000.00 -$2,000.00 $10,000.00 0.90703 $9,070.29
3$12,000.00 -$2,000.00 $10,000.00 0.86384 $8,638.38
4$12,000.00 -$2,000.00 $10,000.00 0.82270 $8,227.02
5$12,000.00 -$2,000.00 $10,000.00 0.78353 $7,835.26
6$12,000.00 -$2,000.00 $10,000.00 0.74622 $7,462.15
7$12,000.00 -$2,000.00 $10,000.00 0.71068 $7,106.81
8$12,000.00 -$2,000.00 $10,000.00 0.67684 $6,768.39
9$12,000.00 -$2,000.00 $10,000.00 0.64461 $6,446.09
10 $12,000.00 -$2,000.00 $10,000.00 0.61391 $6,139.13
11 $12,000.00 -$2,000.00 $10,000.00 0.58468 $5,846.79
12 $12,000.00 -$2,000.00 $10,000.00 0.55684 $5,568.37
13 $12,000.00 -$2,000.00 $10,000.00 0.53032 $5,303.21
14 $12,000.00 -$2,000.00 $10,000.00 0.50507 $5,050.68
15 $12,000.00 -$2,000.00 $10,000.00 0.48102 $4,810.17
-$31,203.42 <- PW
PW = -$135,000 + $10,000(10.37966)
PW = -$31,203.40
b DECISION RULE
c BAILEY SHOULD NOT BUY THE GANG PUNCH
PROBLEM 4.7
a SOLUTION USING INDIVIDUAL CASH FLOWS AND P|F FACTORS
6.00%
EOY + CF – CF NET CF (P|F i%,n) PW OF CF
0 -$100,000.00 -$100,000.00 1.00000 -$100,000.00
1$12,000.00 -$2,000.00 $10,000.00 0.94340 $9,433.96
2$12,000.00 -$2,000.00 $10,000.00 0.89000 $8,899.96
3$12,000.00 -$2,000.00 $10,000.00 0.83962 $8,396.19
4$12,000.00 -$2,000.00 $10,000.00 0.79209 $7,920.94
5$12,000.00 -$2,000.00 $10,000.00 0.74726 $7,472.58
6$12,000.00 -$2,000.00 $10,000.00 0.70496 $7,049.61
7$12,000.00 -$2,000.00 $10,000.00 0.66506 $6,650.57
8$12,000.00 -$2,000.00 $10,000.00 0.62741 $6,274.12
9$12,000.00 -$2,000.00 $10,000.00 0.59190 $5,918.98
10 $12,000.00 -$2,000.00 $10,000.00 0.55839 $5,583.95
11 $12,000.00 -$2,000.00 $10,000.00 0.52679 $5,267.88
12 $12,000.00 -$2,000.00 $10,000.00 0.49697 $4,969.69
13 $12,000.00 -$2,000.00 $10,000.00 0.46884 $4,688.39
14 $12,000.00 -$2,000.00 $10,000.00 0.44230 $4,423.01
15 $12,000.00 -$2,000.00 $10,000.00 0.41727 $4,172.65
-$2,877.51 <- PW
SOLUTION USING EXCEL’S PV FUNCTION
PW = INVESTMENT + PV(0.06,15,-NET CF FOR t=1,15)
PW = -$100,000 + $10,000(9.71225)
PW = -$2,877.50
b DECISION RULE
c BAILEY SHOULD NOT BUY THE GANG PUNCH
PROBLEM 4.8
a SOLUTION USING INDIVIDUAL CASH FLOWS AND P|F FACTORS
10.00%
EOY + CF – CF NET CF (P|F i%,n) PW OF CF
0 -$75,000.00 -$75,000.00 1.00000 -$75,000.00
1$18,500.00 $18,500.00 0.90909 $16,818.18
2$18,500.00 $18,500.00 0.82645 $15,289.26
3$18,500.00 $18,500.00 0.75131 $13,899.32
4$18,500.00 $18,500.00 0.68301 $12,635.75
5$18,500.00 $18,500.00 0.62092 $11,487.04
-$4,870.44 <- PW
SOLUTION USING EXCEL’S NPV FUNCTION
PW = INVESTMENT + NPV(i,NET CF FOR t=1,n)
PW = -$4,870.44 =E7+NPV(0.1,E8:E12)
SOLUTION USING EXCEL’S PV FUNCTION
PW = INVESTMENT + PV(i,n,-CF FOR t=1,n)
PW = -$4,870.44 =E7+PV(0.1,5,-E8)
SOLUTION USING FACTOR TABLES
PW = -$75,000 + $18,500(P|A 10%,5)
PW = -$75,000 + $18,500(3.79079)
PW = -$4,870.39
b DECISION RULE
IF PW > 0, ACCEPT; OTHERWISE, REJECT
c CARLISLE SHOULD REJECT THE FILTER BASED ON ITS ECONOMIC MERITS
d THE ENVIRONMENTAL ISSUE OF REDUCING EMISSIONS IS A NON-ECONOMIC FACTOR
PROBLEM 4.9
a SOLUTION USING INDIVIDUAL CASH FLOWS AND P|F FACTORS
0.00%
EOY + CF – CF NET CF (P|F i%,n) PW OF CF
0 -$75,000.00 -$75,000.00 1.00000 -$75,000.00
1$18,500.00 $18,500.00 1.00000 $18,500.00
2$18,500.00 $18,500.00 1.00000 $18,500.00
3$18,500.00 $18,500.00 1.00000 $18,500.00
4$18,500.00 $18,500.00 1.00000 $18,500.00
5$18,500.00 $18,500.00 1.00000 $18,500.00
$17,500.00 <- PW
SOLUTION USING EXCEL’S NPV FUNCTION
PW = INVESTMENT + NPV(i,NET CF FOR t=1,n)
PW = $17,500.00 =E7+NPV(0,E8:E12)
SOLUTION USING EXCEL’S PV FUNCTION
PW = INVESTMENT + PV(i,n,-NET CF FOR t=1,n)
PW = $17,500.00 =E7+PV(0,5,-E8)
SOLUTION USING FACTOR TABLES
PW = -$75,000 + $18,500(P|A 0%,5)
PW = -$75,000 + $18,500(5.00000)
PW = $17,500.00
b DECISION RULE
IF PW > 0, ACCEPT; OTHERWISE, REJECT
c
YES – CARLISLE SHOULD INSTALL THE FILTER
PROBLEM 4.10
THE MAXIMUM AMOUNT THAT FABCO SHOULD BE WILLING TO SPEND IS THE AMOUNT
THAT SETS THE PW TO ZERO WHICH IS THE PW OF THE SAVINGS.
SOLUTION USING INDIVIDUAL CASH FLOWS AND P|F FACTORS
7.00%
EOY + CF – CF NET CF (P|F i%,n) PW OF CF
0 $0.00 $0.00 1.00000 $0.00
1 $10,000.00 $10,000.00 0.93458 $9,345.79
2 $10,000.00 $10,000.00 0.87344 $8,734.39
3 $10,000.00 $10,000.00 0.81630 $8,162.98
4 $10,000.00 $10,000.00 0.76290 $7,628.95
5 $10,000.00 $10,000.00 0.71299 $7,129.86
6 $10,000.00 $10,000.00 0.66634 $6,663.42
7 $10,000.00 $10,000.00 0.62275 $6,227.50
8 $10,000.00 $10,000.00 0.58201 $5,820.09
9 $10,000.00 $10,000.00 0.54393 $5,439.34
10 $10,000.00 $10,000.00 0.50835 $5,083.49
11 $10,000.00 $10,000.00 0.47509 $4,750.93
12 $10,000.00 $10,000.00 0.44401 $4,440.12
$79,426.86 <- PW
SOLUTION USING EXCEL’S NPV FUNCTION
PW = INVESTMENT + NPV(i,NET CF FOR t=1,n)
PW = $79,426.86 =E10+NPV(0.07,E11:E22)
SOLUTION USING EXCEL’S PV FUNCTION
PW = INVESTMENT + PV(i,n,-NET CF FOR t=1,n)
PW = $79,426.86 =E10+PV(7%,12,-E11)
SOLUTION USING FACTOR TABLES
PW = $10,000(P|A 7%,12)
PW = $10,000(7.94269)
PW = $79,426.90
THE MAXIMUM AMOUNT FABCO SHOULD BE WILLING TO PAY IS $79,426.86
PROBLEM 4.11
CURRENT ANNUAL INSURANCE PREMIUM = ($700,000/$100)*$1.00 = $7,000
NEW ANNUAL INSURANCE PREMIUM = ($720,000/$100)*$0.40 = $2,880
a SOLUTION USING INDIVIDUAL CASH FLOWS AND P|F FACTORS
15.00%
EOY + CF – CF NET CF (P|F i%,n) PW OF CF
0 -$20,000.00 -$20,000.00 1.00000 -$20,000.00
3$4,120.00 -$400.00 $3,720.00 0.65752 $2,445.96
4$4,120.00 -$400.00 $3,720.00 0.57175 $2,126.92
5$4,120.00 -$400.00 $3,720.00 0.49718 $1,849.50
6$4,120.00 -$400.00 $3,720.00 0.43233 $1,608.26
7$4,120.00 -$400.00 $3,720.00 0.37594 $1,398.49
8$4,120.00 -$400.00 $3,720.00 0.32690 $1,216.07
9$4,120.00 -$400.00 $3,720.00 0.28426 $1,057.46
10 $4,120.00 -$400.00 $3,720.00 0.24718 $919.53
15 $4,120.00 -$400.00 $3,720.00 0.12289 $457.17
16 $4,120.00 -$400.00 $3,720.00 0.10686 $397.54
17 $4,120.00 -$400.00 $3,720.00 0.09293 $345.68
18 $4,120.00 -$400.00 $3,720.00 0.08081 $300.60
SOLUTION USING EXCEL’S NPV FUNCTION
PW = INVESTMENT + NPV(i,NET CF FOR t=1,n)
PW = $3,284.71 =E10+NPV(0.15,E11:E30)
SOLUTION USING FACTOR TABLES
PW = $3,284.71
c EDDIE SHOULD BUY THE SPRINKLER SYSTEM
PROBLEM 4.12
a SOLUTION USING INDIVIDUAL CASH FLOWS AND P|F FACTORS
13.50%
EOY + CF – CF NET CF (P|F i%,n) PW OF CF
0 -$1,400.00 –$1,400.00 1.00000 -$1,400.00
1$0.00 $0.00 0.88106 $0.00
2$500.00 $500.00 0.77626 $388.13
3$500.00 $500.00 0.68393 $341.97
4$500.00 $500.00 0.60258 $301.29
5$500.00 $500.00 0.53091 $265.45
6$0.00 $0.00 0.46776 $0.00
7$500.00 $500.00 0.41213 $206.06
8$600.00 $600.00 0.36311 $217.86
9$700.00 $700.00 0.31992 $223.94
10 $800.00 $800.00 0.28187 $225.49
11 $900.00 $900.00 0.24834 $223.51
12 -$1,000.00 –$1,000.00 0.21880 -$218.80
13 -$2,000.00 –$2,000.00 0.19278 -$385.55
14 -$3,000.00 –$3,000.00 0.16985 -$509.54
15 $1,400.00 $1,400.00 0.14964 $209.50
$89.32 <- PW
SOLUTION USING EXCEL’S NPV FUNCTION
PW = $89.32 =E7+NPV(0.135,E8:E22)
DUE TO THE NON-UNIFORM NATURE OF THE NET CF SERIES, EXCEL’S PV FUNCTION
ARE NOT USED TO COMPUTE PW.
c QRU SHOULD INVEST
PROBLEM 4.14
a SOLUTION USING INDIVIDUAL CASH FLOWS AND P|F FACTORS
12.00%
EOY + CF – CF NET CF (P|F i%,n) PW OF CF
0 -$2.00 -$2.00 1.00000 -$2.00
1 -$10.00 -$10.00 0.89286 -$8.93
2 -$12.00 -$12.00 0.79719 -$9.57
3 -$14.00 -$14.00 0.71178 -$9.96
4 -$16.00 -$16.00 0.63552 -$10.17
5 -$18.00 -$18.00 0.56743 -$10.21
6$200.00 $200.00 0.50663 $101.33
7 -$10.00 -$10.00 0.45235 -$4.52
8 -$12.00 -$12.00 0.40388 -$4.85
9 -$14.00 -$14.00 0.36061 -$5.05
10 -$100.00 -$100.00 0.32197 -$32.20
$3.87 <- PW
SOLUTION USING EXCEL’S NPV FUNCTION
PW = INVESTMENT + NPV(i,NET CF FOR t=1,n)
PW = $3.87 =E7+NPV(0.12,E8:E17)
DUE TO THE NON-UNIFORM NATURE OF THE NET CF SERIES, EXCEL’S PV FUNCTION
IS NOT USED TO COMPUTE PW.
DUE TO THE NON-UNIFORM NATURE OF THE NET CF SERIES, THE FACTOR TABLES
ARE NOT USED TO COMPUTE PW.
b DECISION RULE
IF PW > 0, ACCEPT; OTHERWISE, REJECT
PROBLEM 4.15
a SOLUTION USING INDIVIDUAL CASH FLOWS AND P|F FACTORS
18.00%
EOY + CF – CF NET CF (P|F i%,n) PW OF CF
0 -$12.00 -$12.00 1.00000 -$12.00
1 -$1.00 -$1.00 0.84746 -$0.85
2$5.00 $5.00 0.71818 $3.59
3$2.00 $2.00 0.60863 $1.22
4$5.00 $5.00 0.51579 $2.58
5$5.00 $5.00 0.43711 $2.19
6$2.00 $2.00 0.37043 $0.74
7$5.00 $5.00 0.31393 $1.57
-$0.96 <- PW
SOLUTION USING EXCEL’S NPV FUNCTION
PW = INVESTMENT + NPV(i,NET CF FOR t=1,n)
PW = -$0.96 =E7+NPV(0.18,E8:E14)
DUE TO THE NON-UNIFORM NATURE OF THE NET CF SERIES, EXCEL’S PV FUNCTION
IS NOT USED TO COMPUTE PW.
DUE TO THE NON-UNIFORM NATURE OF THE NET CF SERIES, THE FACTOR TABLES
ARE NOT USED TO COMPUTE PW.
b DECISION RULE
IF PW > 0, ACCEPT; OTHERWISE, REJECT
c
IMAGINEERING SHOULD NOT INVEST
PROBLEM 4.16
a SOLUTION USING INDIVIDUAL CASH FLOWS AND P|F FACTORS
10.00%
EOY + CF – CF NET CF (P|F i%,n) PW OF CF
0 -$1,000.00 -$1,000.00 1.00000 -$1,000.00
1 $600.00 -$300.00 $300.00 0.90909 $272.73
2 $600.00 -$300.00 $300.00 0.82645 $247.93
3 $700.00 -$300.00 $400.00 0.75131 $300.53
4 $700.00 -$300.00 $400.00 0.68301 $273.21
5 $700.00 -$300.00 $400.00 0.62092 $248.37
$342.76 <- PW
SOLUTION USING EXCEL’S NPV FUNCTION
PW = INVESTMENT + NPV(i,NET CF FOR t=1,n)
PW = $342.76 =E7+NPV(0.1,E8:E12)
DUE TO THE NON-UNIFORM NATURE OF THE NET CF SERIES, EXCEL’S PV FUNCTION
IS NOT USED TO COMPUTE PW.
SOLUTION USING EXCEL’S PV FUNCTION
PW = INVESTMENT + PV(i,5,-400) + PV(i,2,100)
PW = $342.76 =E7+PV(10%,5,-400)+PV(10%,2,100)
SOLUTION USING FACTOR TABLES
PW = -$1,000 + $400(P|A 10%,5) – $100(P|A 8%,2)
PW = -$1,000 + $400(3.79079) – $100(1.73554)
PW = $342.76
b DECISION RULE
IF PW > 0, ACCEPT; OTHERWISE, REJECT
PROBLEM 4.18
a SOLUTION USING INDIVIDUAL CASH FLOWS AND P|F FACTORS
24.00%
EOY + CF – CF NET CF (P|F i%,n) PW OF CF
0 -$10,000.00 -$10,000.00 1.00000 -$10,000.00
1$30,000.00 -$25,000.00 $5,000.00 0.80645 $4,032.26
2$30,000.00 -$25,000.00 $5,000.00 0.65036 $3,251.82
3$33,000.00 -$25,000.00 $8,000.00 0.52449 $4,195.90
$1,479.98 <- PW
SOLUTION USING EXCEL’S NPV FUNCTION
PW = INVESTMENT + NPV(i,NET CF FOR t=1,n)
PW = $1,479.98 =E7+NPV(0.24,E8:E10)
SOLUTION USING EXCEL’S PV FUNCTION
PW = INVESTMENT + PV(i,n,-5000 NET CF FOR t=1,3,-3000 NET CF FOR t=3)
PW = $1,479.98 =E7+PV(24%,3,-5000,-3000)
SOLUTION USING FACTOR TABLES
PW = -$10,000 + $5,000(P|A 24%,3) + $3,000(P|F 24%,3)
PW = -$10,000 + $5,000(1.98130) + $3,000(0.52449)
PW = $1,479.97
b DECISION RULE
IF PW > 0, ACCEPT; OTHERWISE, REJECT
c NANCY SHOULD BUY THE TRUCK
PROBLEM 4.19
a SOLUTION USING INDIVIDUAL CASH FLOWS AND P|F FACTORS
VENDOR A SOFTWARE
10.00%
EOY + CF – CF NET CF (P|F i%,n) PW OF CF
0 -$380,000.00 -$380,000.00 1.00000 -$380,000.00
1 $125,000.00 $125,000.00 0.90909 $113,636.36
2 $125,000.00 $125,000.00 0.82645 $103,305.79
3 $125,000.00 $125,000.00 0.75131 $93,914.35
4 $125,000.00 $125,000.00 0.68301 $85,376.68
$16,233.18 <- PW
SOLUTION USING EXCEL’S NPV FUNCTION
PW = INVESTMENT + PV(i,n,-NET CF FOR t=1,n)
PW = $16,233.18 =E8+PV(0.1,4,-E9)
VENDOR B SOFTWARE
EOY + CF – CF NET CF (P|F i%,n) PW OF CF
2 $95,000.00 $95,000.00 0.82645 $78,512.40
3 $95,000.00 $95,000.00 0.75131 $71,374.91
4 $95,000.00 $95,000.00 0.68301 $64,886.28
$21,137.22 <- PW
PW = INVESTMENT + PV(i,n,-NET CF FOR t=1,n)
PW = $21,137.22 =E32+PV(0.1,4,-E33)
PW = -$280,000 + $95,000(P|A 10%,4)
PW = -$280,000 + $95,000(3.16987)
PW = $21,137.65
b DECISION RULE
SELECT THE PROJECT WITH THE HIGHEST PW
c MANUEL’S MANUFACTURING SHOULD BUY FROM VENDOR B
PROBLEM 4.20
HEAT LOSS WITH NO INSULATION = $1.50/YR/FT
HEAT LOSS WITH 1 INCH INSULATION IS 1.50 * (1 – 0.89) = $0.165/YR/FT
HEAT LOSS WITH 2 INCH INSULATION IS 1.50 * (1 – 0.92) = $0.12/YR/FT
NO INSULATION
ANNUAL HEAT LOSS = 1.50 * 250,000 = $375,000
ANNUAL HEAT LOSS = 0.165 * 250,000 = $41,250
SOLUTION USING EXCEL’S NPV FUNCTION
PW = INVESTMENT + NPV(i,NET CF FOR t=1,n)
PW = -$353,463.39 =E48+NPV(0.1,E49:E58)
SOLUTION USING EXCEL’S PV FUNCTION
PW = INVESTMENT + PV(i,n,-NET CF FOR t=1,n)
PW = -$353,463.39 =E48+PV(0.1,10,-E49)
SOLUTION USING FACTOR TABLES
PW = -$100,000 – $41,250(P|A 10%,10)
PW = -$100,000 – $41,250(6.1446)
PW = -$353,464.75
2 INCH INSULATION
ANNUAL HEAT LOSS = 0.12 * 250,000 = $30,000
INSULATION COST = 0.85 * 250,000 = $212,500
SOLUTION USING INDIVIDUAL CASH FLOWS AND P|F FACTORS
EOY + CF – CF NET CF (P|F i%,n) PW OF CF
1$0.00 -$30,000.00 -$30,000.00 0.90909 -$27,272.73
2$0.00 -$30,000.00 -$30,000.00 0.82645 -$24,793.39
3$0.00 -$30,000.00 -$30,000.00 0.75131 -$22,539.44
5$0.00 -$30,000.00 -$30,000.00 0.62092 -$18,627.64
6$0.00 -$30,000.00 -$30,000.00 0.56447 -$16,934.22
7$0.00 -$30,000.00 -$30,000.00 0.51316 -$15,394.74
10 $0.00 -$30,000.00 -$30,000.00 0.38554 -$11,566.30
-$396,837.01 <- PW
SOLUTION USING EXCEL’S NPV FUNCTION
PW = INVESTMENT + NPV(i,CF FOR t=1,n)
PW = -$396,837.01 =E82+NPV(0.1,E83:E92)
SOLUTION USING EXCEL’S PV FUNCTION
PW = INVESTMENT + PV(i,n,-NET CF FOR t=1,n)
PW = -$396,837.01 =E82+PV(0.1,10,-E83)
SOLUTION USING FACTOR TABLES
PW = -$212,500 – $30,000(P|A 10%,10)
PW = -$212,500 – $30,000(6.1446)
PW = -$396,838.00
THE HIGHEST PRESENT WORTH IS THE 1 INCH INSULATION, THEREFORE, IT IS RECOMMENDED.
PROBLEM 4.21
PW(A) = $30,000
PW(B) = ($1,000 + 0.5X)(P|A 10%,10)
a. FOR NADINE TO BE INDIFFERENT, THE PW MUST BE EQUAL, THEREFORE,
($1,000 + 0.5X)(P|A 10%,10) = $30,000.00
($1,000 + 0.5X)(6.14457) = $30,000.00
3.07229X = 23,855.43
X = 7,764.7 OR APPROXIMATELY 7,765 UNITS
b. MANUFACTURER PREFERS PLAN B
PROBLEM 4.22
a SOLUTION USING INDIVIDUAL CASH FLOWS AND P|F FACTORS
LAGRANGE
15.00%
EOY + CF – CF NET CF (P|F i%,n) PW OF CF
0 -$1,260,000.00 -$1,260,000.00 1.00000 -$1,260,000.00
1 $480,000.00 $480,000.00 0.86957 $417,391.30
2 $480,000.00 $480,000.00 0.75614 $362,948.96
3 $480,000.00 $480,000.00 0.65752 $315,607.79
4 $480,000.00 $480,000.00 0.57175 $274,441.56
5 $480,000.00 $480,000.00 0.49718 $238,644.83
6 $480,000.00 $480,000.00 0.43233 $207,517.25
7 $480,000.00 $480,000.00 0.37594 $180,449.78
8 $480,000.00 $480,000.00 0.32690 $156,912.85
9 $480,000.00 $480,000.00 0.28426 $136,445.96
10 $480,000.00 $480,000.00 0.24718 $118,648.66
11 $480,000.00 $480,000.00 0.21494 $103,172.75
12 $480,000.00 $480,000.00 0.18691 $89,715.43
$1,341,897.12 <- PW
SOLUTION USING EXCEL’S NPV FUNCTION
PW = INVESTMENT + NPV(i,CF FOR t=1,n)
PW = $1,341,897.12
SOLUTION USING FACTOR TABLES
PW = -$1,260,000 + $480,000(P|A 15%,12)
PW = -$1,260,000 + $480,000(5.42062)
PW = $1,341,897.60
AUBURN
EOY + CF – CF NET CF (P|F i%,n) PW OF CF
0 -$1,000,000.00 -$1,000,000.00 1.00000 -$1,000,000.00
1 $410,000.00 $410,000.00 0.86957 $356,521.74
2 $410,000.00 $410,000.00 0.75614 $310,018.90
3 $410,000.00 $410,000.00 0.65752 $269,581.66
4 $410,000.00 $410,000.00 0.57175 $234,418.83
5 $410,000.00 $410,000.00 0.49718 $203,842.46
6 $410,000.00 $410,000.00 0.43233 $177,254.31
7 $410,000.00 $410,000.00 0.37594 $154,134.19
8 $410,000.00 $410,000.00 0.32690 $134,029.73
9 $410,000.00 $410,000.00 0.28426 $116,547.59
10 $410,000.00 $410,000.00 0.24718 $101,345.73
11 $410,000.00 $410,000.00 0.21494 $88,126.72
12 $410,000.00 $410,000.00 0.18691 $76,631.93
$1,222,453.79 <- PW
SOLUTION USING EXCEL’S NPV FUNCTION
PW = INVESTMENT + NPV(i,CF FOR t=1,n)
PW = $1,222,453.79 =E36+NPV(0.15,E37:E48)
SOLUTION USING EXCEL’S PV FUNCTION
PW = INVESTMENT + PV(i,n,-NET CF FOR t=1)
PW = $1,222,453.79 =E36+PV(0.15,12,-E37)
SOLUTION USING FACTOR TABLES
PW = -$1,000,000 + $410,000(P|A 15%,12)
PW = -$1,000,000 + $410,000(5.42062)
PW = $1,222,454.20
ANNISTON
EOY + CF – CF NET CF (P|F i%,n) PW OF CF
0 -$1,620,000.00 -$1,620,000.00 1.00000 -$1,620,000.00
1 $520,000.00 $520,000.00 0.86957 $452,173.91
2 $520,000.00 $520,000.00 0.75614 $393,194.71
3 $520,000.00 $520,000.00 0.65752 $341,908.44
4 $520,000.00 $520,000.00 0.57175 $297,311.69
5 $520,000.00 $520,000.00 0.49718 $258,531.90
6 $520,000.00 $520,000.00 0.43233 $224,810.35
7 $520,000.00 $520,000.00 0.37594 $195,487.26
8 $520,000.00 $520,000.00 0.32690 $169,988.92
9 $520,000.00 $520,000.00 0.28426 $147,816.45
10 $520,000.00 $520,000.00 0.24718 $128,536.05
11 $520,000.00 $520,000.00 0.21494 $111,770.48
12 $520,000.00 $520,000.00 0.18691 $97,191.72
$1,198,721.88 <- PW
SOLUTION USING EXCEL’S NPV FUNCTION
PW = INVESTMENT + NPV(i,NET CF FOR t=1,n)
PW = $1,198,721.88 =E68+NPV(0.15,E69:E80)
SOLUTION USING EXCEL’S PV FUNCTION
PW = INVESTMENT + PV(i,n,-NET CF FOR t=1)
PW = $1,198,721.88 =E68+PV(0.15,12,-E69)
SOLUTION USING FACTOR TABLES
PW = -$1,620,000 + $520,000(P|A 15%,12)
PW = -$1,620,000 + $520,000(5.42062)
PW = $1,198,722.40
b DECISION RULE
SELECT THE PROJECT WITH THE HIGHEST PW
c QUANTUM LOGISTICS SHOULD BUILD IN LAGRANGE