Scribd Logo
Upload

Welcome to Scribd!

  • Session 8

    Uploaded by

    Khushboo
    7 views5 pages
    The document compares the net present values (NPVs) and costs of two equipment options, A and B, using different methods. Method 1 equalizes the useful lives of Equipment A by replacing it at the end of year 3, resulting in an NPV of -$568.03. Method 2 calculates the equivalent annual cost (EAC) of each option, finding an EAC of -$130.423 for Equipment A and -$111.843 for Equipment B. A separate project compares the NPV using the actual discount rate of 12% to the NPV using a real rate of 6.67%, finding a higher NPV using the real rate. The document also provides an example of calculating dollar and percentage returns on an investment

    Original Description:

    Original Title

    Session-8

    Copyright

    © © All Rights Reserved

    Available Formats

    XLSX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    The document compares the net present values (NPVs) and costs of two equipment options, A and B, using different methods. Method 1 equalizes the useful lives of Equipment A by replacing it at the end of year 3, resulting in an NPV of -$568.03. Method 2 calculates the equivalent annual cost (EAC) of each option, finding an EAC of -$130.423 for Equipment A and -$111.843 for Equipment B. A separate project compares the NPV using the actual discount rate of 12% to the NPV using a real rate of 6.67%, finding a higher NPV using the real rate. The document also provides an example of calculating dollar and percentage returns on an investment

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    7 views5 pages

    Session 8

    Uploaded by

    Khushboo
    The document compares the net present values (NPVs) and costs of two equipment options, A and B, using different methods. Method 1 equalizes the useful lives of Equipment A by replacing it at the end of year 3, resulting in an NPV of -$568.03. Method 2 calculates the equivalent annual cost (EAC) of each option, finding an EAC of -$130.423 for Equipment A and -$111.843 for Equipment B. A separate project compares the NPV using the actual discount rate of 12% to the NPV using a real rate of 6.67%, finding a higher NPV using the real rate. The document also provides an example of calculating dollar and percentage returns on an investment

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 5

    Discount rate 10%

    Equipment A
    0 1 2 3
    -200 -50 -50 -50
    NPV -324.34

    Equipment B 0 1 2 3 4 5 6
    -400 -20 -20 -20 -20 -20 -20

    NPV -487.11

    Method 1 Equialize the useful lives by replacing at the end of third year for Equipment A in this case

    Equipment A
    0 1 2 3 4 5 6
    -200 -50 -50 -50
    -200 -50 -50 -50
    Cash flows -200 -50 -50 -250 -50 -50 -50
    NPV -568.03

    Method 2
    Equivalent Annual Cost

    Equipment A
    Annuity F 2.486852
    EAC -130.423

    Equipment B
    Annuity F 4.355261
    EAC -111.843

    Equipment A EAC for 6 years


    Annuuity 4.355261
    EAC -130.423
    ent A in this case
    Project A
    Inflation ra 5%
    Discount r 12%
    Number of 4

    0 1 2 3 4
    -500 70 130 250 270
    NPV 15.67

    Real rate 6.67%

    NPV for real rate 66.66667 117.9138 215.9594 222.1297


    NPV for ad 15.67
    Beginning price 1430
    Ending price 1680
    Dividend at the end of the year 50
    Number of shares I bought 100
    Dollar return 30000
    Percentage returns 20.98%
    1 6%
    2 5%
    3 -5%
    4 -8%
    5 0.50%

    HPR -2.24%

    You might also like