Homework Answers
a.
|
Year |
A |
B |
Incremental Cash flow |
|
0 |
-12000 |
-25000 |
-13000 |
|
1 |
4000 |
5100 |
1100 |
|
2 |
4000 |
5100 |
1100 |
|
3 |
4000 |
5100 |
1100 |
|
4 |
4000 |
5100 |
1100 |
|
5 |
4000 |
5100 |
1100 |
|
6 |
4000 |
5100 |
1100 |
|
7 |
4000 |
5100 |
1100 |
PW = (-13000/(1+0.1)^0)+(1100/(1+0.1)^1)+(1100/(1+0.1)^2)+(1100/(1+0.1)^3)+(1100/(1+0.1)^4)+(1100/(1+0.1)^5)+(1100/(1+0.1)^6)+(1100/(1+0.1)^7)= -$7645.74
b. ROR is the interest rate at which NPV becomes zero
=(-13000/(1+-0.1161)^0)+ (1100/(1+-0.1161)^1)+ (1100/(1+-0.1161)^2)+ (1100/(1+-0.1161)^3)+ + (1100/(1+-0.1161)^4)+ (1100/(1+-0.1161)^5)+ (1100/(1+-0.1161)^6)+ (1100/(1+-0.1161)^7)
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