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202 answers

Since student has not mentioned which ques to be answered, I am obliged to give answer to rst question
only.

Solution-:

we have to calculate PV of future cash ows and then per annum cost of project, project having least cost,
we will select that project.

option Exe-:

Year cash ows PVIF @9% present value

0 25000 1 25000

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1 5000 .917 4585
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2 5250
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3 5600 .772 4323

Total PV 38329

Equated per annum cost= present value/PVAF(9%,3 year)

= 38329/2.53=15150

Option Wye

Year cash ows PVIF@9% present value

0 40000 1 40000

1 4000 .917 3668

2 4200 .842 3536

3 4450 .772 3435

4 4750 .708 3363

5 5100 .650 3315

TOTAL 57317

Equated per annum cost= PV/PVAF(9%,5)

=57317/3.89= 14734.

decision- project B should be selected

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