question archive Consider the following mutually exclusive investment alternatives (MARR= 10%/year) Alternative A Alternative B First cost
Consider the following mutually exclusive investment alternatives (MARR= 10%/year) Alternative A Alternative B First cost
Subject:EconomicsPrice:9.82 Bought3
Consider the following mutually exclusive investment alternatives (MARR= 10%/year) Alternative A Alternative B First cost. 3005 First cost: 10.000.000$ Outflows: 400.000$ in the 1" year, Revenues: 500.000$/year starting from the decreasing with 30.000$ each year till the 3"d year till the end of the life end of the life Salvage value: 30.000$ Salvage value: 30.0005 Estimated Life: 4years Estimated Life: 6years Compare the alternatives based on PW. Which one is better? (20 points)
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Based on present worth, Alternative B is better than alternative A. This is because the present worth is more favorable than that of A.
Given a certain rate of return, present value (PV) is the current value of a future sum of money or stream of cash flows. The discount rate determines the present value of future cash flows, and the higher the discount rate, the lower the current value of future cash flows. The key to properly valuing future cash flows, whether they are earnings or debt obligations, is to determine the right discount rate.
