Using i of 9%, compare the net presentworth of the net expenditures for the twoproposed plans and select which plan is themost economical plan and Why.Plan A requires an initial investment of$33900. This will be followed by aninvestment of $10,000 at the end of 5 years.During the first 5 years, annual expenditureswill be $5,500, and during the final 5 years,they will be $10,750. There will be a $12,000salvage value at the end of the 10th year.Plan B requires an initial investment of$42,000. This will be followed by aninvestment of $9000 at the end of 4 yearsand an investment of $7,000 at the end of 8years. During the first 4 years, annualexpenditures will be $3,1750, and during thesecond 4 years, they will be $6,250. Thefinal 2 years' expenditures will be $9,000.There will be no salvage value at the end ofthe 10th year.

Here we will use the concept of present value of money to determine the present worth of the…

Answered: Using i of 9%, compare the net present…

Using i of 9%, compare the net present worth of the net expenditures for the two proposed plans and select which plan is the most economical plan and Why.

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter26: Capital Investment Analysis

Section: Chapter Questions

Problem 3CMA

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Using i of 9%, compare the net present
worth of the net expenditures for the two
proposed plans and select which plan is the
most economical plan and Why.
Plan A requires an initial investment of
$33900. This will be followed by an
investment of $10,000 at the end of 5 years.
During the first 5 years, annual expenditures
will be $5,500, and during the final 5 years,
they will be $10,750. There will be a $12,000
salvage value at the end of the 10th year.
Plan B requires an initial investment of
$42,000. This will be followed by an
investment of $9000 at the end of 4 years
and an investment of $7,000 at the end of 8
years. During the first 4 years, annual
expenditures will be $3,1750, and during the
second 4 years, they will be $6,250. The
final 2 years' expenditures will be $9,000.
There will be no salvage value at the end of
the 10th year.

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