(a)
The projects that should be approved.
Answer to Problem 29P
The projects B, C, D, E, H, and J should be approved.
Explanation of Solution
Given:
Salvage Value is
Duration is
Calculation:
Write the expression to calculate the present worth.
Substitute
Find the table to calculate the present worth.
Project | PV(thousand)(COST) | Uniform annual benefits | Rate of return | PW | PW/COST |
A | |||||
B | |||||
C | |||||
D | |||||
E | |||||
F | |||||
G | |||||
H | |||||
I | |||||
J |
Here, the present worth has been calculated using Equation (I).
Conclusion:
Therefore, the projects B, C, D, E, H, and J should be approved.
(b)
The ranking order of all the acceptable projects.
Answer to Problem 29P
The ranking has been shown below.
Project | PW/COST | Ranking |
H | ||
C | ||
J | ||
B | ||
D | ||
E | ||
F | ||
G | ||
A | ||
I |
Explanation of Solution
Calculation:
Rank the project according to the
Project | PW/COST | Ranking |
H | ||
C | ||
J | ||
B | ||
D | ||
E | ||
F | ||
G | ||
A | ||
I |
Conclusion:
Rank the project according to the
Project | PW/COST | Ranking |
H | ||
C | ||
J | ||
B | ||
D | ||
E | ||
F | ||
G | ||
A | ||
I |
(c)
The projects to be approve if only
Answer to Problem 29P
The project to be approve if only
Explanation of Solution
Calculation:
Project | PW/COST | Ranking |
H | ||
C | ||
J | ||
B | ||
D | ||
E | ||
F | ||
G | ||
A | ||
I |
If the project budget is
The project to be approve if only
Hence, the chosen project is correct.
Conclusion:
Therefore, the project to be approve if only
(d)
If the result will be the same if the projects are ranked on
Answer to Problem 29P
No, there will be change in the rank of the project if they are ranked on IRR.
The opportunity cost of capital is
Explanation of Solution
Make the table to calculate the present worth.
Project | PV(thousand)(COST) | Uniform annual benefits | PW | PW/COST | |
A | |||||
B | |||||
C | |||||
D | |||||
E | |||||
F | |||||
G | |||||
H | |||||
I | |||||
J |
Here, the present worth has been calculated using Equation (I).
The project with highest PW is project H and the opportunity cost will be equal to its rate of return that is
Conclusion: No, there will be change in the rank of the project if they are ranked on IRR.
The opportunity cost of capital is
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