1. The example in the previous chapter, National Homebuilders, Inc. evaluated cut-and-finish equipment from vendor A (6-year life) and vendor B (9-year life). The PW analysis used the LCM of 18 years. Consider only the vendor A option now. The cash diagram shows the cash flows for all three life cycles (first cost $-15,000; annual M&O costs $-3500; salvage value $1000). Demonstrate the equivalence at i= 15% of PW over three life cycles and AW over one cycle. In previous example, present worth for vendor A was calculated as PW = $-45,036. cost (A) income year net cash flow 0 -15000 0 -15000 1 -3500 0 -3500 2 -3500 0 -3500 3 -3500 0 -3500 4 -3500 0 -3500 5 -3500 0 -3500 6 -18500 1000 -17500 7 -3500 0 -3500 8 -3500 0 -3500 9 -3500 0 -3500 10 -3500 0 -3500 11 -3500 0 -3500 12 -18500 1000 -17500 13 -3500 0 -3500 14 -3500 0 -3500 15 -3500 0 -3500 16 -3500 0 -3500 17 -3500 0 -3500 18 -3500 1000 -2500 ($45,036.36) annual W ($7,349.32)
1. The example in the previous chapter, National Homebuilders, Inc. evaluated cut-and-finish equipment from vendor A (6-year life) and vendor B (9-year life). The PW analysis used the LCM of 18 years. Consider only the vendor A option now. The cash diagram shows the cash flows for all three life cycles (first cost $-15,000; annual M&O costs $-3500; salvage value $1000). Demonstrate the equivalence at i= 15% of PW over three life cycles and AW over one cycle. In previous example, present worth for vendor A was calculated as PW = $-45,036. cost (A) income year net cash flow 0 -15000 0 -15000 1 -3500 0 -3500 2 -3500 0 -3500 3 -3500 0 -3500 4 -3500 0 -3500 5 -3500 0 -3500 6 -18500 1000 -17500 7 -3500 0 -3500 8 -3500 0 -3500 9 -3500 0 -3500 10 -3500 0 -3500 11 -3500 0 -3500 12 -18500 1000 -17500 13 -3500 0 -3500 14 -3500 0 -3500 15 -3500 0 -3500 16 -3500 0 -3500 17 -3500 0 -3500 18 -3500 1000 -2500 ($45,036.36) annual W ($7,349.32)
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter17: Long-term Investment Analysis
Section: Chapter Questions
Problem 10E
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