Chapter 9A, Problem 1P

To determine

To calculate:

The present value by considering the given situation

Concept Introduction:

Present value: The present value is the current worth of a future sum of money on a given interest rate

The present value is calculated by the following formula

PV

= Cash flow at period

= Rate of return

=number of periods.

Explanation of Solution

1. The net present value of plan (i) is calculated by the following

The present value of the (ii) is calculated by the following way

= = =



So plan (i) is considered to be less as compared to plan (ii)

2. The present value of the (i) plan can be found out by the following
=

=

The present value of the (ii) plan can be found out by the following

=

=

=

So now the plan (ii) is less expensive