Question

do not use excel. by hand.

2. You are evaluating two mutually exclusive projects. The cash flows for each are: Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Project A ($50,000) $25,000 $35,000 $20,000 Project B ($75,000) $24,000 $25,000 $30,000 $25,000 $15,000 $15,000 Assume that, if needed, each project is repeatable with no change in cash flows. Your cost of capital is 14%. a. Using the replacement chain approach, which project would you chose to invest in? Using the equivalent annual annuity approach, which project wo uld you chose to invest in? b.

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

I HAVE WRITTEN IN EXCEL. BUT DID NOT USE A SINGLE EXCEL FUNCTION. MY HANDWRITING IS NOT THAT GOOD. I HAVE EVEN CALCULATED PV FACTOR USING CALCULATOR.

I HAVE USED CALCULATOR IN ALL CALCULATIONS AND ALSO EXPLAINED HOW TO GET THE VALUES. WILL CLEAR ALL DOUBTS WITHOUT FAIL. THANK YOU

Home ert Page Layout Formulas Data Review V Add-Ins s Cut aCopy Σ AutoSum , Fill Format Painter В า 프. m. a-Δ. Ξミ 迣锂函Merge & Center. $, % , 弼皛Conditional Format. Cell. Insert Delete Format Sort &Find & Filter Select 袖 Formatting ▼ as Table-styles ▼ 2 Clear , ▼ ▼ ▼ Clipboard Font Alignment Cells dting AH35 AH Al AK AM AN AO AQ AS AT 18 19 20 21 PROJECT A PROJECT B PV FACTOR 14% PV OF CFAT (A) PV OF CFAT (B) QFR NOTE AS MACHINE A HAS TO BE REPLACED AT THE END OF 3TH YEAR NET CFAT -50000+20000 30000 year 75000 24000 25000 75000 21052.63 19236.69 20249.15 14802.01 7790.53 6833.80 14964.80 0 50000 21929.82 26931.36 20249.15 14802.01 18177.90 9111.73 20703.68 23 25000 35000 30000 25000 35000 20000 0.877193 0.769468 0.674972 0.592080 0.519369 0.455587 PV FACTOR CALCULATION IN CALCULATOR 25 25000 15000 15000 4 27 28 29 30 31 (a) 32 PV FACTOR 0 1/(1+0.14)A0 1 1/(1+0.14)A1 2 1/(1+0.14)42 3 1/(1+0.14)A3 4 1/(1+0.14)A4 5 1/(1+0.14)A5 6 1/(1+0.14)A6 6 NPV GO WITH PROJECT A, IT HAS HIGHER NPV 35 36 トト MIRR NPV IRR REPLACEMENTS / HPR GMAM EAC MACRS LEASE RATIOCASHBUDGET wacc BOND EPS EBIT REPLACEMENT STats HPV BETA LEVERED 2 05:15 14-02-2019

Home ert Page Layout Formulas Data Review V Add-Ins В า 프. m. a-Δ. Ξミ 迣锂函Merge & Center. $, % , 弼皛 Conditional Format C Formatting ▼ as Table-styles ▼ Insert Delete Format Format Painter Sort &Find & Filter Select 袖 2 Clear , ▼ ▼ ▼ AH 38 year PROJECT A PROJECT B PV FACTOR 14% PV OF CFAT (A) PV OF CFAT (B) 0.877193 0.769468 0.674972 0.592080 0.519369 0.455587 21052.63 19236.69 20249.15 14802.01 7790.53 6833.80 14964.80 21929.82 26931.36 13499.43 12360.62 FOR A FOR A FOR A NPV/PVI FAC) 14%, NO OF YEAR 12360.62/(ADDITION OF FIRST 3 YEARS PV FACTORS) 12360.62/2.321632 (AS LIFE IS OF 3 YEARS) 5324.11 14964.80/(ADDITION OF FIRST 6 YEARS PV FACTORS) 14964.80/3.888668 FOR B FOR B FOR B SELECT PROJECT A AS IT HAS HIGHER EAA (AS LIFE IS OF 6 YEARS) 3848.31 ト커 MIRR NPV IRR REPLACEMENT S HPR GMAM EAC MACRS LEASE RATIOCASHBUDGET -wacc BOND Eps EBIT REPLACEMENT STats NPV BETA LEVERED 齞"z a 옐 9L .will tra; ENIG 14-02 2019 1382 967 6 2 2 3 2 1 1 5232 0123456 9 123 12