a) Which offer is better, based on Annual Worth comparison?

Answer:-
Offer 1 is better, because
Comparing the Annual worth of both the alternatives, it is observed that Offer 1 will be
selected as it shows lower negative Annual worth compared to Offer 2 at the interest rate of
9% per year. Detailed excel calculation give.
b) Which offer is better, based on Future Worth comparison?
Answer:-
Offer 1 is better, because
Comparing the Future worth of both the alternatives, it is observed that Offer 1 will be
selected as it shows lower negative Future worth compared to Offer 2 at the interest rate of
9% per year. Detailed excel calculation give.
c) Do both metods (Annual Worth and future Worth) always lead to same result?
Answer:-
Present value (PV) and future value (FV) measure how much the value of money has changed
over time.
Ø The future value (FV) measures the nominal future sum of money that a given sum of
money is "worth" at a specified time in the future assuming a certain interest rate, or more
generally, rate of return. The FV is calculated by multiplying the present value by the
accumulation function
Ø PV and FV vary jointly: when one increases, the other increases, assuming that the interest
rate and number of periods remain constant.
d) For a fifteen-year study period, what salvage value for the press in offer 2 would make
it a better choice?
Answer:
Offer 2 with 15 year period with salvage value of 760,000 make it better choice all other things
of offer remain same.
1 B C D E F G H I J K L M N O P Q R
OFFER
2                                
-1
3 MARR 9%                              
4                                  
5 Year 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
       
Selling
6 (1,000,                              
Price
000)
7                                  
8 Shipm                                            
ent & (50,000
 Install
ation )
Cost
Mainta                                                          
(10,
9 inance   (8,0 (9,00 (11,0 (12,0 (13,00 (14,0 (15,0 (16,0 (17,0 (18,0 (19,0 (20,0 (21,0 (22,0
000)
Cost 00) 0) 00) 00) 0) 00) 00) 00) 00) 00) 00) 00) 00) 00)
Annual
                                                                                      
1 Operat
  (8,5 (8,50 (8,5 (8,50 (8,50 (8,500 (8,50 (8,50 (8,50 (8,50 (8,50 (8,50 (8,50 (8,50 (8,50
0 ing
00) 0) 00) 0) 0) ) 0) 0) 0) 0) 0) 0) 0) 0) 0)
Cost
Salvag   
1
e                               210,
1
Value 000
                                                          
1 (16, (18,
  (1,050, (17,5 (19,5 (20,5 (21,50 (22,5 (23,5 (24,5 (25,5 (26,5 (27,5 (28,5 (29,5 179,
2 500) 500)
000) 00) 00) 00) 0) 00) 00) 00) 00) 00) 00) 00) 00) 500
1
                                 
3
Discou
1 0.91 0.77 0.65 0.54 0.50 0.46 0.42 0.38 0.35 0.32 0.29 0.27
nting 1 0.842 0.708 0.596
4 7 2 0 7 2 0 2 8 6 6 9 5
Factor
1
                                 
5
Discou
                                                          
1 nted (15, (14,
  (14,7 (13,8 (13,3 (12,82 (12,3 (11,7 (11,2 (10,7 (10,2 (9,77 (9,29 (8,82 (8,37
6 Expen 138) 285)
29) 14) 24) 0) 08) 94) 80) 71) 70) 7) 6) 8) 3)
ses
1
                                 
7
PW
       
1 ( Prese
(1,169,                              
8 nt
155)
Worth)
1
                                 
9
2 AW                                          
0 ( Annu (145,04
 al
4)
Worth)
2
                                 
1
FW
       
2 ( Futur
(4,258,                    
2 e
627)
Worth)