Question

P Q 2 /4 m 77.1% сошрашся шгше vage, occгсаагааг Слсангни са, poposca pojects шагсапросшашу deliver the objective of the campaign. The projects benefit and cost streams are computed as follows. The discount rate for the projects is 9 %. year 5 and after* 150 Green Benefits 3000 7000 Costs 6000 20000 Benefits 4000 Clean Costs 6000 20000 12000 17000 22000 15000 5000 50000 10000 20000 10000 15000 5000 50000 1010 *This means that the payment stream of year 5 will go on forever. 1. 1. Ili IV. What are the net present values of each projects? (5 marks) What are the future worth of each projects? (5 marks) What are the Anmal worth of each projects? ( 5 marks) Which project should be selected? ( 5 marks) Problem 5 (27.5 marks) ABC manues considering three mutually exclusive alternatives, as shown in the table below MARR 10. Po

Answer 1

		Present Value(PV) of Net Benefit:
		(Net Benefit)/((1+i)^N)
		i=discount rate =9%=0.09
		N=Year   of net benefit
		PROJECT GREEN
	N	Year	0	1	2	3	4	5	6	7	to perpetuity
	A	Benefit	3,000	7000	12000	17000	22000	150	150	150
	B	Cost	6,000	20,000	15,000	5,000	5,000	0	0	0
	C=A-B	Net Benefit	(3,000)	(13,000)	(3,000)	12,000	17,000	150	150	150
	D=150/0.09	Horizon value of net benefits from year 6 to infinity						1,666.67
	CF=C+D	Total Net Benefit	(3,000)	(13,000)	(3,000)	12,000	17,000	1,817	SUM
	PV=CF/(1.09^N)	Present Value of Total Net Benefit	(3,000)	(11,927)	(2,525)	9,266	12,043	1,181	5,038
	NPV=Sum of PV	Net Present Value	5,038
	AW=NPV*0.09	Annual Worth	453.46
		Future Value of Net Benefit in year 5 =Benefit *(1.09^(5-N))							SUM
		Future Value of Net Benefit in year 5	(4,616)	(18,351)	(3,885)	14,257	18,530	1,817	7,752
		Future Worth of the project	7,752
		PROJECT CLEAN AIR
	N	Year	0	1	2	3	4	5	6	7	to perpetuity
	A	Benefit	0	4000	10000	20000	10000	1010	1010	1010
	B	Cost	6,000	20,000	15,000	5,000	5,000	0	0	0
	C=A-B	Net Benefit	(6,000)	(16,000)	(5,000)	15,000	5,000	1,010	1,010	1,010
	D=1010/0.09	Horizon value of net benefits from year 6 to infinity						11,222.22
	CF=C+D	Total Net Benefit	(6,000)	(16,000)	(5,000)	15,000	5,000	12,232	SUM
	PV=CF/(1.09^N)	Present Value of Total Net Benefit	(6,000)	(14,679)	(4,208)	11,583	3,542	7,950	(1,812)
	NPV=Sum of PV	Net Present Value	(1,812)
	AW=NPV*0.09	Annual Worth	(163.11)
		Future Value of Net Benefit in year 5 =Benefit *(1.09^(5-N))							SUM
		Future Value of Net Benefit in year 5	(9,232)	(22,585)	(6,475)	17,822	5,450	12,232	(2,788)
		Future Worth of the project	(2,788)
		PROJECT GREEN SHOULD BE SELECTED
		It has higher Net Present Value, Annual Worth and Future Worth