Alternatives 1,2, and 3 have lives of 3,4, and 6 years, respectively. Their net cash flow (NCF) and salvage value (SV) profiles 7. WILEY are as follows: Alternative 1 Alternative 2 Alternative 3 NCF1 SVI NCF2 SV3 EOY SV2 NCF3 -$20,000 -$40,000 $40,000 -$70,000 $70,000 $20,000 $30,000 $50,000 1 $8,000 $30,000 $30,000 $8,000 $20,000 $20,000 $30,000 2 $30,000 $28,000 $20,000 $10,000 $20,000 $20,000 $30,000 $10,000 4 $30,000 $5,000 6 $30,000 $2,000 Additional explanation is necessary: the NCF profile of Alternative 1 that is shown above is the net result of a $20,000/year lease payment payable at the beginning of each year, plus an end-of-year net revenue of $28,000. This lease arrangement may be renewed in 3-year increments; however, premature cancellation of the lease results in a lease termination penalty (cost) of $10,000 at the time of cancellation. The NCFS of all other alternatives are expected to repeat indefinitely as shown If a least-common-multiple-of-lives approach is to be used, specify the planning horizon and the complete set of cash flows for each alternative а. Repeat (a) using the shortest life approach b.
Alternatives 1,2, and 3 have lives of 3,4, and 6 years, respectively. Their net cash flow (NCF) and salvage value (SV) profiles 7. WILEY are as follows: Alternative 1 Alternative 2 Alternative 3 NCF1 SVI NCF2 SV3 EOY SV2 NCF3 -$20,000 -$40,000 $40,000 -$70,000 $70,000 $20,000 $30,000 $50,000 1 $8,000 $30,000 $30,000 $8,000 $20,000 $20,000 $30,000 2 $30,000 $28,000 $20,000 $10,000 $20,000 $20,000 $30,000 $10,000 4 $30,000 $5,000 6 $30,000 $2,000 Additional explanation is necessary: the NCF profile of Alternative 1 that is shown above is the net result of a $20,000/year lease payment payable at the beginning of each year, plus an end-of-year net revenue of $28,000. This lease arrangement may be renewed in 3-year increments; however, premature cancellation of the lease results in a lease termination penalty (cost) of $10,000 at the time of cancellation. The NCFS of all other alternatives are expected to repeat indefinitely as shown If a least-common-multiple-of-lives approach is to be used, specify the planning horizon and the complete set of cash flows for each alternative а. Repeat (a) using the shortest life approach b.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Alternatives 1,2, and 3 have lives of 3,4, and 6 years, respectively. Their net cash flow (NCF) and salvage value (SV)
profiles
7.
WILEY
are as follows:
Alternative 1
Alternative 2
Alternative 3
NCF1
SVI
NCF2
SV3
EOY
SV2
NCF3
-$20,000
-$40,000
$40,000
-$70,000
$70,000
$20,000
$30,000
$50,000
1
$8,000
$30,000
$30,000
$8,000
$20,000
$20,000
$30,000
2
$30,000
$28,000
$20,000
$10,000
$20,000
$20,000
$30,000
$10,000
4
$30,000
$5,000
6
$30,000
$2,000
Additional explanation is necessary: the NCF profile of Alternative 1 that is shown above is the net result of a
$20,000/year lease payment payable at the beginning of each year, plus an end-of-year net revenue of $28,000. This
lease arrangement may be renewed in 3-year increments; however, premature cancellation of the lease results in a
lease termination penalty (cost) of $10,000 at the time of cancellation.
The NCFS of all other alternatives are expected to repeat indefinitely
as shown
If a least-common-multiple-of-lives approach is to be used, specify the planning horizon and the complete set of
cash flows for each alternative
а.
Repeat (a) using the shortest life approach
b.
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