Answered: Illustrate the concept of present-worth…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 17QTD

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Question

Illustrate the concept of present-worth analysis based on cash flow
equivalence along with the payback period?

Expert Solution

Step 1

The concept of present-worth analysis based on cash flow equivalence along with the payback period. Important results observed are :-

Current value is a measure of equity when the cash flow of a project is reduced to a single current value. It is probably the most effective analysis method we can use to determine the economic viability of a project. Other methods of analysis, built on a sound understanding of current values.
MARR, or the low interest rate, is the interest rate on which a company can always earn or borrow money. It is usually prescribed by management and is the standard on which PW analysis is performed.
Revenue projects are projects where income depends on project choice. Service projects projects revenue remain the same, regardless of which project is selected.

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