PROBLEM 4.23
a SOLUTION USING INDIVIDUAL CASH FLOWS AND P|F FACTORS
PROJECT A
12.00%
EOY + CF – CF NET CF (P|F i%,n) PW OF CF
0 -$50,000.00 -$50,000.00 1.00000 -$50,000.00
1$20,000.00 -$12,500.00 $7,500.00 0.89286 $6,696.43
2$20,000.00 -$12,500.00 $7,500.00 0.79719 $5,978.95
3$20,000.00 -$12,500.00 $7,500.00 0.71178 $5,338.35
4$20,000.00 -$12,500.00 $7,500.00 0.63552 $4,766.39
5$20,000.00 -$12,500.00 $7,500.00 0.56743 $4,255.70
6$20,000.00 -$12,500.00 $7,500.00 0.50663 $3,799.73
7$20,000.00 -$12,500.00 $7,500.00 0.45235 $3,392.62
11 $20,000.00 -$12,500.00 $7,500.00 0.28748 $2,156.07
12 $20,000.00 -$12,500.00 $7,500.00 0.25668 $1,925.06
17 $20,000.00 -$12,500.00 $7,500.00 0.14564 $1,092.33
18 $20,000.00 -$12,500.00 $7,500.00 0.13004 $975.30
SOLUTION USING EXCEL’S NPV FUNCTION
PW = INVESTMENT + PV(i,n,-NET CF FOR t=1)
PW = $6,020.83 =E8+PV(0.12,20,-E9)
SOLUTION USING FACTOR TABLES
PW = -$50,000 + $7,500(P|A 12,20)
PW = -$50,000 + $7,500(7.46944)
PROJECT B
2$28,000.00 -$18,000.00 $10,000.00 0.79719 $7,971.94
3$28,000.00 -$18,000.00 $10,000.00 0.71178 $7,117.80
4$28,000.00 -$18,000.00 $10,000.00 0.63552 $6,355.18
5$28,000.00 -$18,000.00 $10,000.00 0.56743 $5,674.27
6$28,000.00 -$18,000.00 $10,000.00 0.50663 $5,066.31
7$28,000.00 -$18,000.00 $10,000.00 0.45235 $4,523.49
8$28,000.00 -$18,000.00 $10,000.00 0.40388 $4,038.83
9$28,000.00 -$18,000.00 $10,000.00 0.36061 $3,606.10
10 $28,000.00 -$18,000.00 $10,000.00 0.32197 $3,219.73
11 $28,000.00 -$18,000.00 $10,000.00 0.28748 $2,874.76
12 $28,000.00 -$18,000.00 $10,000.00 0.25668 $2,566.75
13 $28,000.00 -$18,000.00 $10,000.00 0.22917 $2,291.74
14 $28,000.00 -$18,000.00 $10,000.00 0.20462 $2,046.20
15 $28,000.00 -$18,000.00 $10,000.00 0.18270 $1,826.96
16 $28,000.00 -$18,000.00 $10,000.00 0.16312 $1,631.22
17 $28,000.00 -$18,000.00 $10,000.00 0.14564 $1,456.44
18 $28,000.00 -$18,000.00 $10,000.00 0.13004 $1,300.40
19 $28,000.00 -$18,000.00 $10,000.00 0.11611 $1,161.07
20 $28,000.00 -$18,000.00 $10,000.00 0.10367 $1,036.67
-$305.56 <- PW
SOLUTION USING EXCEL’S NPV FUNCTION
PW = INVESTMENT + NPV(i,CF FOR t=1,n)
PW = -$305.56 =E48+NPV(0.12,E49:E68)
SOLUTION USING EXCEL’S PV FUNCTION
PW = INVESTMENT + PV(i,n,-NET CF FOR t=1)
PW = -$75,000 + $10,000(7.46944)
PW = -$305.60
b TEMPURA SHOULD PURSUE PROJECT A
PROBLEM 4.24
a SOLUTION USING INDIVIDUAL CASH FLOWS AND P|F FACTORS
MACHINE 7745
6.00%
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 -$300.00 -$300.00 0.94340 -$283.02
2 -$300.00 -$300.00 0.89000 -$267.00
3 -$300.00 -$300.00 0.83962 -$251.89
4 -$300.00 -$300.00 0.79209 -$237.63
5 -$300.00 -$300.00 0.74726 -$224.18
6 -$300.00 -$300.00 0.70496 -$211.49
7 -$300.00 -$300.00 0.66506 -$199.52
8 -$300.00 -$300.00 0.62741 -$188.22
9 -$300.00 -$300.00 0.59190 -$177.57
10 $1,000.00 -$300.00 $700.00 0.55839 $390.88
PW = INVESTMENT + PV(i,n,-NET CF FOR t=1,-1000)
PW = -$11,649.63 =E8+PV(0.06,10,-E9,-1000)
PW = -$10,000 – $300(P|A 6%,10) + $1,000(P|F 6%,10)
PW = -$10,000 – $300(7.36009) + $1,000(0.55839)
PW = -$11,649.64
MACHINE A37Y
EOY + CF – CF NET CF (P|F i%,n) PW OF CF
2 -$300.00 -$300.00 0.89000 -$267.00
3 -$300.00 -$300.00 0.83962 -$251.89
4 -$300.00 -$300.00 0.79209 -$237.63
5 -$300.00 -$300.00 0.74726 -$224.18
6 -$300.00 -$300.00 0.70496 -$211.49
7 -$300.00 -$300.00 0.66506 -$199.52
-$10,208.03 <- PW
SOLUTION USING EXCEL’S NPV FUNCTION
PW = INVESTMENT + NPV(i,NET CF FOR t=1,n)
SOLUTION USING EXCEL’S PV FUNCTION
PW = INVESTMENT + PV(i,n,-NET CF FOR t=1)
PW = -$10,208.03 =E38+PV(0.06,10,-E39)
SOLUTION USING FACTOR TABLES
PW = -$8,000 – $300(P|A 6%,10)
PW = -$8,000 – $300(7.36009)
PW = -$10,208.03
b DECISION RULE
SELECT THE PROJECT WITH THE HIGHEST PW
c MACHINE A37Y SHOULD BE PURCHASED
PROBLEM 4.25
a SOLUTION USING INDIVIDUAL CASH FLOWS AND P|F FACTORS
A001
10.00%
EOY + CF – CF NET CF (P|F i%,n) PW OF CF
0 -$210.00 -$210.00 1.00000 -$210.00
1$80.00 $80.00 0.90909 $72.73
2$90.00 $90.00 0.82645 $74.38
3$100.00 $100.00 0.75131 $75.13
4$110.00 $110.00 0.68301 $75.13
SOLUTION USING EXCEL’S NPV FUNCTION
PW = $87.37 =E8+NPV(0.1,E9:E12)
DUE TO THE NON-UNIFORM NATURE OF THE NET CF SERIES, EXCEL’S PV FUNCTION
IS NOT USED TO COMPUTE PW.
PW = -$210 + $80(3.16987) + $10(4.37812)
PW = $87.37
1$60.00 $60.00 0.90909 $54.55
2$60.00 $60.00 0.82645 $49.59
3$60.00 $60.00 0.75131 $45.08
4$70.00 $70.00 0.68301 $47.81
$87.02 <- PW
SOLUTION USING EXCEL’S NPV FUNCTION
PW = $87.02 =E32+NPV(0.1,E33:E36)
PW = INVESTMENT + PV(i,n,-NET CF FOR t=1,-INCR CF FOR t=n)
PW = $87.02 =E32+PV(0.1,4,-E33,-10)
PW = -$110 + $60(P|A 10%,4) + $10(P|F 10%,4)
PW = -$110 + $60(3.16987) + $10(0.68301)
C003
EOY + CF – CF NET CF (P|F i%,n) PW OF CF
0 -$160.00 -$160.00 1.00000 -$160.00
1$80.00 $80.00 0.90909 $72.73
2$80.00 $80.00 0.82645 $66.12
3$80.00 $80.00 0.75131 $60.11
4$80.00 $80.00 0.68301 $54.64
$93.59 <- PW
SOLUTION USING EXCEL’S NPV FUNCTION
PW = INVESTMENT + NPV(i,NET CF FOR t=1,n)
PW = $93.59 =E57+NPV(0.1,E58:E61)
SOLUTION USING EXCEL’S PV FUNCTION
PW = INVESTMENT + PV(i,n,-NET CF FOR t=1)
PW = $93.59 =E57+PV(0.1,4,-E58)
SOLUTION USING FACTOR TABLES
PW = -$160 + $80(P|A 10%,4)
PW = -$160 + $80(3.16987)
PW = $93.59
b XANADU SHOULD ACCEPT ALTERNATIVE C003
PROBLEM 4.26
A COMMON PLANNING HORIZON TO 24 YEARS IS USED IN THE ANALYSIS
a SOLUTION USING INDIVIDUAL CASH FLOWS AND P|F FACTORS
STRUCTURE Y
5.00%
EOY + CF – CF NET CF (P|F i%,n) PW OF CF
0 -$4,500.00 -$4,500.00 1.00000 -$4,500.00
1 -$1,000.00 -$1,000.00 0.95238 -$952.38
2 -$1,000.00 -$1,000.00 0.90703 -$907.03
3 -$1,000.00 -$1,000.00 0.86384 -$863.84
4 -$1,000.00 -$1,000.00 0.82270 -$822.70
5 -$1,000.00 -$1,000.00 0.78353 -$783.53
6 -$1,000.00 -$1,000.00 0.74622 -$746.22
7 -$1,000.00 -$1,000.00 0.71068 -$710.68
8 -$1,000.00 -$1,000.00 0.67684 -$676.84
19 -$1,000.00 -$1,000.00 0.39573 -$395.73
20 -$1,000.00 -$1,000.00 0.37689 -$376.89
21 -$1,000.00 -$1,000.00 0.35894 -$358.94
22 -$1,000.00 -$1,000.00 0.34185 -$341.85
23 -$1,000.00 -$1,000.00 0.32557 -$325.57
24 -$1,000.00 -$1,000.00 0.31007 -$310.07
PW = INVESTMENT + PV(i,n,-NET CF FOR t=1)+PV(i,12,,4500)
PW = -$20,804.41 =E38+PV(0.06,10,-E39)
PW = -$4,500 – $1,000(P|A 5%,24) – $4,500(P|F 5%,12)
PW = -$4,500 – $1,000(13.79864) – $4,500(0.55684)
STRUCTURE Z
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 -$720.00 -$720.00 0.95238 -$685.71
2 -$720.00 -$720.00 0.90703 -$653.06
3 -$720.00 -$720.00 0.86384 -$621.96
4 -$720.00 -$720.00 0.82270 -$592.35
5 -$720.00 -$720.00 0.78353 -$564.14
6 -$720.00 -$720.00 0.74622 -$537.28
7 -$720.00 -$720.00 0.71068 -$511.69
8 -$720.00 -$720.00 0.67684 -$487.32
9 -$720.00 -$720.00 0.64461 -$464.12
10 -$720.00 -$720.00 0.61391 -$442.02
11 -$720.00 -$720.00 0.58468 -$420.97
12 -$720.00 -$720.00 0.55684 -$400.92
13 -$720.00 -$720.00 0.53032 -$381.83
17 -$720.00 -$720.00 0.43630 -$314.13
18 -$720.00 -$720.00 0.41552 -$299.17
19 -$720.00 -$720.00 0.39573 -$284.93
20 -$720.00 -$720.00 0.37689 -$271.36
21 -$720.00 -$720.00 0.35894 -$258.44
-$19,376.90 <- PW
PW = -$19,376.90
SOLUTION USING EXCEL’S PV FUNCTION
PW = -$19,376.89
c THE MILITARY BASE SHOULD SELECT STRUCTURE Z
PROBLEM 4.27
PW OF LOTTERY PAYOUT (IN M$)
SOLUTION USING INDIVIDUAL CASH FLOWS AND P|F FACTORS
6.00%
EOY CF (P|F i%,n) PW OF CF
0$1.00 1.00000 $1.00
1$1.30 0.94340 $1.23
2$1.30 0.89000 $1.16
3$1.30 0.83962 $1.09
4$1.30 0.79209 $1.03
5$1.30 0.74726 $0.97
6$1.30 0.70496 $0.92
7$1.30 0.66506 $0.86
8$1.30 0.62741 $0.82
9$1.30 0.59190 $0.77
10 $1.30 0.55839 $0.73
13 $1.30 0.46884 $0.61
15 $1.30 0.41727 $0.54
17 $1.30 0.37136 $0.48
19 $1.30 0.33051 $0.43
$15.91 <- PW
PW = INVESTMENT + PV(i,n,-NET CF FOR t=1)
PW = $15.91 =C7+PV(0.06,20,-C8)
DECISION: SINCE THE PW OF THE ONE-TIME IS LOWER THAN THE PW
PROBLEM 4.28
a SOLUTION USING INDIVIDUAL CASH FLOWS AND P|F FACTORS
POLISHER 1
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
1$4,465.00 $4,465.00 0.86957 $3,882.61
2$4,465.00 $4,465.00 0.75614 $3,376.18
3$4,465.00 $4,465.00 0.65752 $2,935.81
4$4,465.00 $4,465.00 0.57175 $2,552.88
5$4,465.00 $4,465.00 0.49718 $2,219.89
6$4,465.00 $4,465.00 0.43233 $1,930.34
7$4,465.00 $4,465.00 0.37594 $1,678.56
8$4,465.00 $4,465.00 0.32690 $1,459.62
PW = INVESTMENT + PV(i,n,-NET CF FOR t=1,-INCR CF FOR t=n)
PW = $2,408.80 =E8+PV(0.15,10,-E9)
SOLUTION USING FACTOR TABLES
PW = -$20,000 + $4,465(P|A 15,10)
PW = -$20,000 + $4,465(5.01877)
POLISHER 2
1$1,770.00 $1,770.00 0.86957 $1,539.13
2$1,770.00 $1,770.00 0.75614 $1,338.37
3$1,770.00 $1,770.00 0.65752 $1,163.80
4$1,770.00 $1,770.00 0.57175 $1,012.00
5$1,770.00 $1,770.00 0.49718 $880.00
6$1,770.00 $1,770.00 0.43233 $765.22
7$1,770.00 $1,770.00 0.37594 $665.41
-$1,116.78 <- PW
SOLUTION USING EXCEL’S NPV FUNCTION
PW = INVESTMENT + NPV(i,NET CF FOR t=1,n)
PW = -$1,116.78 =E39+NPV(0.15,E40:E49)
SOLUTION USING EXCEL’S PV FUNCTION
PW = INVESTMENT + PV(i,n,-NET CF FOR t=1,-INCR CF FOR t=n)
PW = -$1,116.78 =E39+PV(0.15,10,-E40)
SOLUTION USING FACTOR TABLES
PW = -$10,000 + $1,770(P|A 15,10)
PW = -$10,000 + $1,770(5.01877)
PW = -$1,116.78
POLISHER 3
EOY + CF – CF NET CF (P|F i%,n) PW OF CF
2$3,580.00 $3,580.00 0.75614 $2,706.99
3$3,580.00 $3,580.00 0.65752 $2,353.91
7$3,580.00 $3,580.00 0.37594 $1,345.85
8$3,580.00 $3,580.00 0.32690 $1,170.31
9$3,580.00 $3,580.00 0.28426 $1,017.66
10 $3,580.00 $3,580.00 0.24718 $884.92
PW = $2,967.19 =E70+NPV(0.15,E71:E80)
PW = $2,967.20
PROBLEM 4.29
SOLUTION USING INDIVIDUAL CASH FLOWS AND P|F FACTORS
TANK
20.00%
EOY TANK O&M NET CF (P|F i%,n) PW OF CF
0 -$426,000.00 -$426,000.00 1.00000 -$426,000.00
1 -$6,400.00 –$6,400.00 0.83333 -$5,333.33
2 -$6,400.00 –$6,400.00 0.69444 -$4,444.44
3 -$6,400.00 –$6,400.00 0.57870 -$3,703.70
4 -$6,400.00 –$6,400.00 0.48225 -$3,086.42
5 -$6,400.00 –$6,400.00 0.40188 -$2,572.02
6 -$6,400.00 –$6,400.00 0.33490 -$2,143.35
7 -$6,400.00 –$6,400.00 0.27908 -$1,786.12
12 -$6,400.00 –$6,400.00 0.11216 -$717.80
13 -$6,400.00 –$6,400.00 0.09346 -$598.17
14 -$6,400.00 –$6,400.00 0.07789 -$498.47
15 -$6,400.00 –$6,400.00 0.06491 -$415.40
20 -$6,400.00 –$6,400.00 0.02608 -$166.94
-$457,165.31 <- PW
PW = INVESTMENT + PV(i,n,-NET CF FOR t=1)
PW = -$457,165.31 =E7+PV(0.2,20,-E25)
POND
1 -$17,000.00 -$17,000.00 0.83333 -$14,166.67
2 -$17,000.00 -$17,000.00 0.69444 -$11,805.56
3 -$17,000.00 -$17,000.00 0.57870 -$9,837.96
4 -$17,000.00 -$17,000.00 0.48225 -$8,198.30
5 -$17,000.00 -$17,000.00 0.40188 -$6,831.92
6 -$17,000.00 -$17,000.00 0.33490 -$5,693.27
7 -$17,000.00 -$17,000.00 0.27908 -$4,744.39
8 -$17,000.00 -$17,000.00 0.23257 -$3,953.66
9 -$17,000.00 -$17,000.00 0.19381 -$3,294.71
10 -$17,000.00 -$17,000.00 0.16151 -$2,745.59
11 -$17,000.00 -$17,000.00 0.13459 -$2,288.00
12 -$17,000.00 -$17,000.00 0.11216 -$1,906.66
13 -$17,000.00 -$17,000.00 0.09346 -$1,588.89
14 -$17,000.00 -$17,000.00 0.07789 -$1,324.07
15 -$17,000.00 -$17,000.00 0.06491 -$1,103.39
16 -$17,000.00 -$17,000.00 0.05409 -$919.49
17 -$17,000.00 -$17,000.00 0.04507 -$766.25
18 -$17,000.00 -$17,000.00 0.03756 -$638.54
19 -$17,000.00 -$17,000.00 0.03130 -$532.11
20 -$17,000.00 -$17,000.00 0.02608 -$443.43
-$352,782.86 <- PW
SOLUTION USING EXCEL’S NPV FUNCTION
PW = INVESTMENT + NPV(i,NET CF FOR t=1,n)
PW = -$352,782.86 =E48+NPV(0.2,E49:E68)
SOLUTION USING EXCEL’S PV FUNCTION
PW = INVESTMENT + PV(i,n,-NET CF FOR t=1)
PW = -$270,000 – $17,000(4.86958)
PW = -$352,782.86
DECISION: POND IS PREFERRED
PROBLEM 4.30
a SOLUTION USING INDIVIDUAL CASH FLOWS AND P|F FACTORS
TELESCOPE T1
25.00%
EOY + CF – CF NET CF (P|F i%,n) PW OF CF
0 -$600,000.00 -$600,000.00 1.00000 -$600,000.00
1 $400,000.00 -$130,000.00 $270,000.00 0.80000 $216,000.00
2 $400,000.00 -$130,000.00 $270,000.00 0.64000 $172,800.00
3 $400,000.00 -$130,000.00 $270,000.00 0.51200 $138,240.00
4 $400,000.00 -$130,000.00 $270,000.00 0.40960 $110,592.00
5 $400,000.00 -$130,000.00 $270,000.00 0.32768 $88,473.60
6 $400,000.00 -$130,000.00 $270,000.00 0.26214 $70,778.88
7 $400,000.00 -$130,000.00 $270,000.00 0.20972 $56,623.10
8 $400,000.00 -$130,000.00 $270,000.00 0.16777 $45,298.48
PW = INVESTMENT + PV(i,n,-NET CF FOR t=1,-SV FOR t=n)
PW = $371,552.08 =E7+PV(0.25,10,-E8,-70000)
TELESCOPE T2
EOY + CF – CF NET CF (P|F i%,n) PW OF CF
2 $600,000.00 -$270,000.00 $330,000.00 0.64000 $211,200.00
3 $600,000.00 -$270,000.00 $330,000.00 0.51200 $168,960.00
4 $600,000.00 -$270,000.00 $330,000.00 0.40960 $135,168.00
5 $600,000.00 -$270,000.00 $330,000.00 0.32768 $108,134.40
6 $600,000.00 -$270,000.00 $330,000.00 0.26214 $86,507.52
7 $600,000.00 -$270,000.00 $330,000.00 0.20972 $69,206.02
8 $600,000.00 -$270,000.00 $330,000.00 0.16777 $55,364.81
9 $600,000.00 -$270,000.00 $330,000.00 0.13422 $44,291.85
10 $730,000.00 -$270,000.00 $460,000.00 0.10737 $49,392.12
PW = INVESTMENT + PV(i,n,-NET CF FOR t=1,-SV FOR t=n)
PW = $392,224.72 =E37+PV(0.25,10,-E38,-130000)
SOLUTION USING FACTOR TABLES
PW = -$800,000 + $330,000(P|A 25%,10) + $130,000(P|F 25%,10)
PW = -$800,000 + $330,000(3.57050) + $130,000(0.10737)
PW = $392,223.10
TELESCOPE T3
EOY + CF – CF NET CF (P|F i%,n) PW OF CF
0 -$470,000.00 -$470,000.00 1.00000 -$470,000.00
2 $260,000.00 -$70,000.00 $190,000.00 0.64000 $121,600.00
3 $260,000.00 -$70,000.00 $190,000.00 0.51200 $97,280.00
4 $260,000.00 -$70,000.00 $190,000.00 0.40960 $77,824.00
5 $260,000.00 -$70,000.00 $190,000.00 0.32768 $62,259.20
6 $260,000.00 -$70,000.00 $190,000.00 0.26214 $49,807.36
10 $325,000.00 -$70,000.00 $255,000.00 0.10737 $27,380.42
$215,374.94 <- PW
PW = INVESTMENT + PV(i,n,-NET CF FOR t=1,-SV FOR t=n)
PW = $215,374.94 =E67+PV(0.25,10,-E68,-65000)
PW = -$470,000 + $190,000(P|A 25%,10) + $65,000(P|F 25%,10)
PW = -$470,000 + $190,000(3.57050) + $65,000(0.10737)
PW = $215,374.05
TELESCOPE T4
EOY + CF – CF NET CF (P|F i%,n) PW OF CF
2 $320,000.00 -$120,000.00 $200,000.00 0.64000 $128,000.00
3 $320,000.00 -$120,000.00 $200,000.00 0.51200 $102,400.00
4 $320,000.00 -$120,000.00 $200,000.00 0.40960 $81,920.00
5 $320,000.00 -$120,000.00 $200,000.00 0.32768 $65,536.00
6 $320,000.00 -$120,000.00 $200,000.00 0.26214 $52,428.80
7 $320,000.00 -$120,000.00 $200,000.00 0.20972 $41,943.04
10 $520,000.00 -$120,000.00 $400,000.00 0.10737 $42,949.67
$195,575.49 <- PW
SOLUTION USING EXCEL’S NPV FUNCTION
PW = INVESTMENT + NPV(i,NET CF FOR t=1,n)
PW = $195,575.49 =E97+NPV(0.25,E98:E107)
SOLUTION USING EXCEL’S PV FUNCTION
PW = INVESTMENT + PV(i,n,-NET CF FOR t=1,-SV FOR t=n)
PW = $195,575.49 =E97+PV(0.25,10,-E98,-200000)
TELESCOPE T2 HAS THE HIGHEST PRESENT WORTH AND IS THEREFORE PREFERRED.
42.00%
EOY + CF – CF NET CF (P|F i%,n) PW OF CF
0 -$600,000.00 -$600,000.00 1.00000 -$600,000.00
1 $400,000.00 -$130,000.00 $270,000.00 0.70423 $190,140.85
2 $400,000.00 -$130,000.00 $270,000.00 0.49593 $133,902.00
3 $400,000.00 -$130,000.00 $270,000.00 0.34925 $94,297.19
4 $400,000.00 -$130,000.00 $270,000.00 0.24595 $66,406.47
5 $400,000.00 -$130,000.00 $270,000.00 0.17320 $46,765.12
6 $400,000.00 -$130,000.00 $270,000.00 0.12197 $32,933.18
7 $400,000.00 -$130,000.00 $270,000.00 0.08590 $23,192.38
8 $400,000.00 -$130,000.00 $270,000.00 0.06049 $16,332.66
9 $400,000.00 -$130,000.00 $270,000.00 0.04260 $11,501.88
SOLUTION USING EXCEL’S NPV FUNCTION
PW = INVESTMENT + NPV(i,NET CF FOR t=1,n)
PW = INVESTMENT + PV(i,n,-NET CF FOR t=1,-SV FOR t=n)
PW = $25,671.61 =E131+PV(0.42,10,-E132,-70000)
PW = -$600,000 + $270,000(P|A 42%,10) + $70,000(P|F 42%,10)
PW = -$600,000 + $270,000(2.30952) + $70,000(0.03000)
PW = $25,670.40
TELESCOPE T2
EOY + CF – CF NET CF (P|F i%,n) PW OF CF
2 $600,000.00 -$270,000.00 $330,000.00 0.49593 $163,658.00
3 $600,000.00 -$270,000.00 $330,000.00 0.34925 $115,252.12
4 $600,000.00 -$270,000.00 $330,000.00 0.24595 $81,163.46
5 $600,000.00 -$270,000.00 $330,000.00 0.17320 $57,157.37
6 $600,000.00 -$270,000.00 $330,000.00 0.12197 $40,251.67
7 $600,000.00 -$270,000.00 $330,000.00 0.08590 $28,346.24
8 $600,000.00 -$270,000.00 $330,000.00 0.06049 $19,962.14
9 $600,000.00 -$270,000.00 $330,000.00 0.04260 $14,057.85
10 $730,000.00 -$270,000.00 $460,000.00 0.03000 $13,799.85
-$33,956.93 <- PW
SOLUTION USING EXCEL’S NPV FUNCTION
PW = INVESTMENT + NPV(i,NET CF FOR t=1,n)
PW = -$33,956.93 =E161+NPV(0.42,E162:E171)
PW = INVESTMENT + PV(i,n,-NET CF FOR t=1,-SV FOR t=n)
PW = -$33,956.93 =E161+PV(0.42,10,-E162,-130000)
TELESCOPE T3
EOY + CF – CF NET CF (P|F i%,n) PW OF CF
2 $260,000.00 -$70,000.00 $190,000.00 0.49593 $94,227.34
3 $260,000.00 -$70,000.00 $190,000.00 0.34925 $66,357.28
4 $260,000.00 -$70,000.00 $190,000.00 0.24595 $46,730.48
5 $260,000.00 -$70,000.00 $190,000.00 0.17320 $32,908.79
6 $260,000.00 -$70,000.00 $190,000.00 0.12197 $23,175.20
10 $325,000.00 -$70,000.00 $255,000.00 0.03000 $7,649.92
-$29,240.35 <- PW
PW = INVESTMENT + PV(i,n,-NET CF FOR t=1,-SV FOR t=n)
PW = -$29,240.35 =E191+PV(0.42,10,-E192,-65000)
TELESCOPE T4
EOY + CF – CF NET CF (P|F i%,n) PW OF CF
0 -$540,000.00 -$540,000.00 1.00000 -$540,000.00
1 $320,000.00 -$120,000.00 $200,000.00 0.70423 $140,845.07
2 $320,000.00 -$120,000.00 $200,000.00 0.49593 $99,186.67
3 $320,000.00 -$120,000.00 $200,000.00 0.34925 $69,849.77
4 $320,000.00 -$120,000.00 $200,000.00 0.24595 $49,189.98
5 $320,000.00 -$120,000.00 $200,000.00 0.17320 $34,640.83
6 $320,000.00 -$120,000.00 $200,000.00 0.12197 $24,394.95
7 $320,000.00 -$120,000.00 $200,000.00 0.08590 $17,179.54
8 $320,000.00 -$120,000.00 $200,000.00 0.06049 $12,098.27
9 $320,000.00 -$120,000.00 $200,000.00 0.04260 $8,519.91
10 $520,000.00 -$120,000.00 $400,000.00 0.03000 $11,999.87
-$72,095.15 <- PW
SOLUTION USING EXCEL’S NPV FUNCTION
PW = INVESTMENT + NPV(i,NET CF FOR t=1,n)
PW = -$72,095.15 =E221+NPV(0.42,E222:E231)
SOLUTION USING EXCEL’S PV FUNCTION
PW = INVESTMENT + PV(i,n,-NET CF FOR t=1,-SV FOR t=n)
PW = -$72,095.15 =E221+PV(0.42,10,-E222,-200000)
SOLUTION USING FACTOR TABLES
PW = -$540,000 + $200,000(P|A 25%,10) + $200,000(P|F 25%,10)
PW = -$540,000 + $200,000(2.30952) + $200,000(0.03000)
PW = -$72,096.00
TELESCOPE T1 HAS THE HIGHEST PRESENT WORTH AND IS THEREFORE PREFERRED.
PROBLEM 4.31
SOLUTION USING INDIVIDUAL CASH FLOWS AND P|F FACTORS
IN K$
12.00%
EOY BUILDING FURNITURE O&M REVENUE NET CF (P|F i%,n) PW OF CF
0 -$8,000.00 -$700.00 -$8,700.00 1.00000 -$8,700.00
1 -$800.00 $1,460.00 $660.00 0.89286 $589.29
2 -$800.00 $1,752.00 $952.00 0.79719 $758.93
3 -$800.00 $2,044.00 $1,244.00 0.71178 $885.45
4 -$800.00 $2,336.00 $1,536.00 0.63552 $976.16
5 -$700.00 -$800.00 $2,628.00 $1,128.00 0.56743 $640.06
6 -$800.00 $2,628.00 $1,828.00 0.50663 $926.12
7 -$800.00 $2,628.00 $1,828.00 0.45235 $826.89
8 -$800.00 $2,628.00 $1,828.00 0.40388 $738.30
9 -$800.00 $2,628.00 $1,828.00 0.36061 $659.20
10 -$700.00 -$800.00 $2,628.00 $1,128.00 0.32197 $363.19
11 -$800.00 $2,628.00 $1,828.00 0.28748 $525.51
12 -$800.00 $2,628.00 $1,828.00 0.25668 $469.20
13 -$800.00 $2,628.00 $1,828.00 0.22917 $418.93
14 -$800.00 $2,628.00 $1,828.00 0.20462 $374.05
15 $900.00 -$800.00 $2,628.00 $2,728.00 0.18270 $498.40
$949.66 <- PW
SOLUTION USING EXCEL’S NPV FUNCTION
PW = INVESTMENT + NPV(i,NET CF FOR t=1,n)
PW = $949.66 =G7+NPV(0.12,G8:G22)
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.
DECISION: MOTEL IS ECONOMICALLY ATTRACTIVE
SOLUTION USING FACTOR TABLES