Contemporary Engineering Economics Plus MyLab Engineering with eText -- Access Card Package (6th Edition)
6th Edition
ISBN: 9780134162690
Author: Chan S. Park
Publisher: PEARSON
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Chapter 6, Problem 44P
To determine
Calculate the annual value.
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CT Corp. is considering two mutually exclusive projects. Both require an initial investment of P120,000 at t = 0. Project X has an expected life of 2 years with after-tax cash inflows of P67,000 and P75,000 at the end of Years 1 and 2, respectively. In addition, Project X can be repeated at the end of Year 2 with no changes in its cash flows. Project Y has an expected life of 4 years with after-tax cash inflows of P38,500 at the end of each of the next 4 years. Each project has a WACC of 8%.
Listed below are the requirements for this data set:
Using the replacement chain approach, how much is the NPV of Project X? (Round the final answer to the nearest peso. Use the "NPV formula" in excel for exact computation. Otherwise, answer based on rounded pv factors will also be accepted.)
Which of the two projects will be more profitable considering the replacement chain approach on the NPV of Project X?
Using the equivalent annuity approach, what is the equivalent annuity of Project Y?…
A financial investor has an investment portfolio. A bond in her investment portfolio will mature next month and provide her $25,000 to reinvest. The choices for reinvestment have been narrowed to the following two options:Option 1: Reinvest in a foreign bond that will mature in one year. Thistransaction will entail a brokerage fee of $150. For simplicity, assume thatthe bond will provide interest over the one-year period of $2,450, $2,000, or $1,675 and that the probabilities of these occurrences are assessed to be 0.25, 0.45, and 0.30, respectively.Option 2: Reinvest in a $25,000 certificate with a savings and loan association.Assume that this certificate has an effective annual rate of 7.5%.Which form of reinvestment should the investor choose in order to maximize her expected financial gain?
Smith and Co. has to choose between two mutually exclusive projects. If it chooses project A, Smith and Co. will have the opportunity to make a similar investment in three years. However, if it chooses project B, it will not have the opportunity to make a second investment. The following table lists the cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the difference between the net present value (NPV) of project A and project B, assuming that both projects have a weighted average cost of capital of 10%?
Cash Flow
Project A
Project B
Year 0:
–$17,500
Year 0:
–$40,000
Year 1:
10,000
Year 1:
8,000
Year 2:
16,000
Year 2:
16,000
Year 3:
15,000
Year 3:
15,000
Year 4:
12,000
Year 5:
11,000
Year 6:
10,000
$15,731
$11,012
$12,585
$9,439
$14,158
Smith and Co. is considering a three-year project that has a weighted average cost of capital…
Chapter 6 Solutions
Contemporary Engineering Economics Plus MyLab Engineering with eText -- Access Card Package (6th Edition)
Ch. 6 - Prob. 1PCh. 6 - Prob. 2PCh. 6 - Prob. 3PCh. 6 - Prob. 4PCh. 6 - Prob. 5PCh. 6 - Prob. 6PCh. 6 - Consider the cash flows in Table P6.7 for the...Ch. 6 - Prob. 8PCh. 6 - Prob. 9PCh. 6 - The repeating cash flows for a certain project are...
Ch. 6 - Beginning next year, a foundation will support an...Ch. 6 - Prob. 12PCh. 6 - Prob. 13PCh. 6 - Prob. 14PCh. 6 - Prob. 15PCh. 6 - Prob. 16PCh. 6 - Prob. 17PCh. 6 - Prob. 18PCh. 6 - The Geo-Star Manufacturing Company is considering...Ch. 6 - Prob. 20PCh. 6 - Prob. 21PCh. 6 - Prob. 22PCh. 6 - Prob. 23PCh. 6 - Prob. 24PCh. 6 - Prob. 25PCh. 6 - Prob. 26PCh. 6 - Prob. 27PCh. 6 - Prob. 28PCh. 6 - Prob. 29PCh. 6 - Prob. 30PCh. 6 - Prob. 31PCh. 6 - Prob. 32PCh. 6 - Prob. 33PCh. 6 - Prob. 34PCh. 6 - Prob. 35PCh. 6 - Prob. 36PCh. 6 - Prob. 37PCh. 6 - Prob. 38PCh. 6 - Prob. 39PCh. 6 - Prob. 40PCh. 6 - Prob. 41PCh. 6 - Prob. 42PCh. 6 - Prob. 43PCh. 6 - Prob. 44PCh. 6 - Prob. 45PCh. 6 - Prob. 46PCh. 6 - Prob. 47PCh. 6 - Prob. 48PCh. 6 - Prob. 49PCh. 6 - Prob. 50PCh. 6 - Prob. 51PCh. 6 - Prob. 52PCh. 6 - Prob. 53PCh. 6 - Prob. 1STCh. 6 - Prob. 2STCh. 6 - Prob. 3STCh. 6 - Prob. 4ST
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