CHAPTER 12 TEST

𝑖 𝑁𝑃𝑉 𝑎𝑡 8%
.
𝑃𝑉 𝑜𝑓 𝑜𝑢𝑡𝑓𝑙𝑜𝑤𝑠 105000 105000𝑣 105000𝑣 200000𝑣
=366306.86
𝑃𝑉 𝑜𝑓 𝑖𝑛𝑓𝑙𝑜𝑤𝑠 17000𝑎𝑏𝑎𝑟: 3 3000 𝐼𝑎 𝑏𝑎𝑟: 3 𝑣
29000𝑎𝑏𝑎𝑟: 1 ∗ 𝑣 29000 1.03 ∗ 𝑎𝑏𝑎𝑟: 1 ∗
𝑣 … . . 29000 1.03 ∗ 𝑎𝑏𝑎𝑟: 1 ∗ 𝑣
First solving the increasing annuity
.
. .
.
= 17000 ∗ 3000 ∗ .
𝑣 56668.35
. .

Then, solving the GP

.
𝑡ℎ𝑖𝑠 𝑖𝑠 𝑎 𝑔𝑝 𝑤ℎ𝑒𝑟𝑒 𝑎 29000 ∗ ∗ 1.08 𝑎𝑛𝑑
.

𝑟 1.03 1.08

. . .
=29000 ∗ ∗ 1.08 ∗ 313939.48
. . .

Therefore 𝑃𝑉 𝑜𝑓 𝑖𝑛𝑓𝑙𝑜𝑤𝑠 313939.48 56668.35

=370607.83
𝑁𝑃𝑉 𝑃𝑉 𝑜𝑓 𝑖𝑛𝑓𝑙𝑜𝑤𝑠 𝑃𝑉 𝑜𝑓 𝑜𝑢𝑡𝑓𝑙𝑜𝑤𝑠
=370607.83 366306.86
=4300.97
4300 𝑖𝑠 𝑡ℎ𝑒 𝑛𝑒𝑎𝑟𝑒𝑠𝑡 𝑡𝑜 4000 , ℎ𝑒𝑛𝑐𝑒 𝑝𝑟𝑜𝑣𝑒𝑑.
ii) Finding DPP at 15,
𝑁𝑃𝑉 𝑃𝑉 𝑜𝑓 𝑖𝑛𝑓𝑙𝑜𝑤𝑠 𝑃𝑉 𝑜𝑓 𝑜𝑢𝑡𝑓𝑙𝑜𝑤𝑠
.
𝑃𝑉 𝑜𝐹 𝑜𝑢𝑡𝑓𝑙𝑜𝑤𝑠 105000 105000𝑣 105000𝑣
=303258.51
 𝑃𝑉 𝑜𝑓 𝑖𝑛𝑓𝑙𝑜𝑤𝑠 17000𝑎𝑏𝑎𝑟: 3 3000 𝐼𝑎 𝑏𝑎𝑟: 3 𝑣
29000𝑎𝑏𝑎𝑟: 1 ∗ 𝑣 29000 1.03 ∗ 𝑎𝑏𝑎𝑟: 1 ∗
𝑣 … . .29000 1.03 ∗ 𝑎𝑏𝑎𝑟: 1 ∗ 𝑣
First solving increasing annuities,

1 1.08
⎛ 0.08 3 1.08 ⎞
⎜ 1 1.08 1.08 ⎟
⎜ 17000 ∗ ln 1.08 3000 ∗
ln 1.08 ⎟𝑣
⎜ ⎟

⎝ ⎠
56668.35

Then, solving the GP,

1 1.08
𝑡ℎ𝑖𝑠 𝑖𝑠 𝑎 𝑔𝑝 𝑤ℎ𝑒𝑟𝑒 𝑎 29000 ∗ ∗ 1.08 𝑎𝑛𝑑
ln 1.08
𝑟 1.03 1.08 and 𝑛 11

. . .
=29000 ∗ ∗ 1.08 ∗ 180063.81
. . .

𝑇𝑜𝑡𝑎𝑙 𝑃𝑉 𝑜𝑓 𝑖𝑛𝑓𝑙𝑜𝑤𝑠 1800063.81 56668.35

=236732.16
DPP is where the inflows cross the outflows for the first time
𝐹𝑜𝑟 𝐷𝑃𝑃, 𝑃𝑉 𝑜𝑓 𝑖𝑛𝑓𝑙𝑜𝑤𝑠 𝑃𝑉 𝑜𝑓 𝑜𝑢𝑡𝑓𝑙𝑜𝑤𝑠
=236732.16 303258.51
Therefore, as the inflows do not cross the outflows the DPP does not lie within
the first 15 years.
2.) For Project A,
𝑃𝑉 𝑜𝑓 𝑜𝑢𝑡𝑓𝑙𝑜𝑤𝑠 170000 20000𝑣 10000𝑣
𝑃𝑉 𝑜𝑓 𝑜𝑢𝑡𝑓𝑙𝑜𝑤𝑠 20000 ∗ 𝑎: 3 180000𝑣
𝐼𝑅𝑅 𝑖𝑠 𝑤ℎ𝑒𝑟𝑒 𝑁𝑃𝑉 0,
𝑁𝑃𝑉 𝑃𝑉 𝑜𝑓 𝑖𝑛𝑓𝑙𝑜𝑤𝑠 𝑃𝑉 𝑜𝑓 𝑂𝑢𝑡𝑓𝑙𝑜𝑤𝑠
0= 170000 20000𝑣 10000𝑣 20000 ∗ 𝑎: 3 180000𝑣
𝑆𝑜,
170000 20000 ∗ 𝑎: 3 180000𝑣 20000𝑣 10000𝑣
𝐵𝑦 𝑖𝑛𝑡𝑒𝑟𝑝𝑜𝑙𝑎𝑡𝑖𝑛𝑔 𝑤𝑒 𝑔𝑒𝑡,
0.07 171993.96
170000
0.08 167339.83
.
Therefore, ∗ 0.01 0.07 7.4%
. .

𝐹𝑜𝑟 𝑃𝑟𝑜𝑗𝑒𝑐𝑡 𝐵,
𝑃𝑉 𝑜𝑓 𝑜𝑢𝑡𝑓𝑙𝑜𝑤𝑠 200000
𝑃𝑉 𝑜𝑓 𝑖𝑛𝑓𝑙𝑜𝑤𝑠 14000 ∗ 𝑎: 6 200000𝑣
𝐼𝑅𝑅 𝑖𝑠 𝑤ℎ𝑒𝑟𝑒 𝑁𝑃𝑉 𝑖𝑠 0,
𝑁𝑃𝑉 𝑃𝑉 𝑜𝑓 𝑖𝑛𝑓𝑙𝑜𝑤𝑠 𝑃𝑉 𝑜𝑓 𝑜𝑢𝑡𝑓𝑙𝑜𝑤𝑠
=14000 ∗ 𝑎: 6 200000𝑣 200000

200000 14000 ∗ 200000 1 𝑋

𝐵𝑦 𝑖𝑛𝑡𝑒𝑟𝑝𝑜𝑙𝑎𝑡𝑖𝑛𝑔 𝑤𝑒 𝑔𝑒𝑡 ,
0.07 200000
Therefore 𝐼𝑅𝑅 𝑓𝑜𝑟 𝑡ℎ𝑒 𝑃𝑟𝑜𝑗𝑒𝑐𝑡 𝐵 𝑖𝑠 7%
3.) 𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝑖𝑛 𝑚𝑖𝑙𝑙𝑖𝑜𝑛𝑠,
𝑖 𝐴𝑐𝑐𝑢𝑚𝑢𝑙𝑎𝑡𝑒𝑑 𝑃𝑟𝑜𝑓𝑖𝑡 𝐴𝑉 𝑜𝑓 𝑖𝑛𝑓𝑙𝑜𝑤𝑠 𝐴𝑉 𝑜𝑓 𝑜𝑢𝑡𝑓𝑙𝑜𝑤𝑠
𝐴𝑉 𝑜𝑓 𝑖𝑛𝑓𝑙𝑜𝑤𝑠 0.9 ∗ 𝑎𝑏𝑎𝑟: 20 ∗𝑣 ∗ 1 𝑖
.
=(0.9 ∗ ∗ 1.1 ∗ 1.1 ^25 54.0839
.

𝐴𝑉 𝑜𝑓 𝑜𝑢𝑡𝑓𝑙𝑜𝑤𝑠 2 1.1 4 1.1 57.4866

𝑇ℎ𝑒𝑟𝑒𝑓𝑜𝑟𝑒 , 𝐴𝑐𝑐𝑢𝑚𝑢𝑙𝑎𝑡𝑒𝑑 𝑝𝑟𝑜𝑓𝑖𝑡 54.0839 57.4866 3.40 𝑚𝑖𝑙𝑙𝑖𝑜𝑛
𝑖𝑖 𝐼𝑅𝑅 𝑖𝑠 𝑤ℎ𝑒𝑟𝑒 𝑁𝑃𝑉 𝑖𝑠 0, 𝑠𝑜 𝑎𝑡 𝐼𝑅𝑅 9.38% , 𝑁𝑃𝑉 0
𝑃𝑉 𝑜𝑓 𝑖𝑛𝑓𝑙𝑜𝑤𝑠 0.9 ∗ 𝑎𝑏𝑎𝑟: 20 ∗ 𝑣 @9.38%
.
=0.9 ∗ ∗ 1.0938 5.3444
.

𝑃𝑉 𝑜𝑓 𝑜𝑢𝑡𝑓𝑙𝑜𝑤𝑠 2 4 1.0938 5.3433

𝑁𝑃𝑉 𝑃𝑉 𝑜𝑓 𝑖𝑛𝑓𝑙𝑜𝑤𝑠 𝑃𝑉 𝑜𝑓 𝑜𝑢𝑡𝑓𝑙𝑜𝑤𝑠
=5.3444 5.3433 0.0011
𝑖𝑡 𝑖𝑠 𝑐𝑙𝑜𝑠𝑒 𝑡𝑜 0, ℎ𝑒𝑛𝑐𝑒 𝑝𝑟𝑜𝑣𝑒𝑑
𝑖𝑖𝑖 𝐼𝑅𝑅 𝑖𝑠 𝑤ℎ𝑒𝑟𝑒 𝑁𝑃𝑉 𝑖𝑠 𝑧𝑒𝑟𝑜
𝐹𝑜𝑟 𝑃𝑟𝑜𝑗𝑒𝑐𝑡 𝐵,
𝑃𝑉 𝑜𝑓 𝑜𝑢𝑡𝑓𝑙𝑜𝑤𝑠 100000 ∗ 𝑎𝑑𝑢𝑒: 10 @9.38%
=690373.17
𝑃𝑉 𝑜𝑓 𝑖𝑛𝑓𝑙𝑜𝑤𝑠 𝑋𝑣 2𝑋 ∗ 𝑣 3𝑋 ∗ 𝑣 … … .10𝑋 ∗ 𝑣 𝑣
= 𝑋 ∗ 𝐼𝑎 : 10 ∗𝑣
.
. .
=𝑋 ∗ .
∗ 1.0938
.

=12.282𝑋
Therefore ,
𝑃𝑉 𝑜𝑓 𝑖𝑛𝑓𝑙𝑜𝑤𝑠 𝑃𝑉 𝑜𝑓 𝑜𝑢𝑓𝑙𝑜𝑤𝑠
12.282𝑋 690373.17
.
𝑋 56206.38
.
𝑖𝑣 𝑁𝑒𝑡 𝑝𝑟𝑒𝑠𝑒𝑛𝑡 𝑣𝑎𝑙𝑢𝑒 𝑓𝑜𝑟 𝑃𝑟𝑜𝑗𝑒𝑐𝑡 𝐴,
𝑃𝑉 𝑜𝑓 𝑖𝑛𝑓𝑙𝑜𝑤𝑠 0.9 ∗ 𝑎𝑏𝑎𝑟: 20 ∗𝑣
.
=(0.9 ∗ ∗ 1.1 4.9917
.

𝑃𝑉 𝑜𝑓 𝑜𝑢𝑡𝑓𝑙𝑜𝑤𝑠 2 4 1.1 5.3057

𝑁𝑃𝑉 0.314
𝑆𝑜,
‐314000 100000 ∗ 𝑎𝑑𝑢𝑒: 10 + 𝑋 ∗ 𝐼𝑎 : 10 ∗𝑣
.
. .
.
314000 = 100000 ∗ . 𝑋∗ .
∗
.
.
1.1
‐314000 = 675902.38 11.1945𝑋
675902.38 314000 11.1945𝑋
361902.38=11.1945X
𝑋 32328.58
Therefore the X is 32328.58.

………………………………………………. THE END..............................

TOTAL TIME:2hrs 15 mins