The projects to be funded and the
Answer to Problem 22P
Projects
The opportunity cost of the capital is
Explanation of Solution
Given:
Project | First cost | Annual benefits | Life (years) |
A | |||
B | |||
C | |||
D | |||
E | |||
F | |||
G | |||
H | |||
I |
The budget of the company is
Concept used:
Write the formula to calculate the present worth factor.
Here, the rate is i and the time period is n.
Calculation:
Calculate the Internal rate of return (IRR).
To determine the IRR, equate the present worth of project to zero.
For project A.
Substitute
For project B.
Substitute
For project C.
Substitute
For project D.
Substitute
For project E.
Substitute
For project F.
Substitute
For project G.
Substitute
For project H.
Substitute
For project I.
Substitute
Tabulate the results.
Project | First cost | IRR |
A | ||
B | ||
C | ||
D | ||
E | ||
F | ||
G | ||
H | ||
I |
Projects
Thus, the opportunity cost of the capital is
Conclusion:
Projects
The opportunity cost of the capital is
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Chapter 15 Solutions
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