Question

Scenario: Sumaira has to choose between spending $25 on one umbrella that provides 5 years of...

  1. Scenario: Sumaira has to choose between spending $25 on one umbrella that provides 5 years of protection worth $10 per year in dry cleaning savings or a $5 umbrella that provides $9 of protection for one year.
  2. Calculate NPVs @ 7% with the replacement chain method and make a recommendation. Which umbrella should she buy? Hint: assume she would buy a new, $5 umbrella every year vs. a single $25 umbrella.
  3. Calculate Equivalent Annual Annuities @ 7% and make a recommendation. Which umbrella should she buy? Is your recommendation the same as with the Replacement Chain Method?
  4. Use Excel
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Excel formula for NPV = NPV(rate, select the cashflows)

With replacement NPV of the umbrella cost $25 is higher than $5 so it is recommended.

In the Equivalent Annual Annuities approach also the recommendation is the same as the $25 umbrella has higher NPV.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Question 5 18 marks Gina Coulson has just contracted to sell a small parcel of land...
Question 5 18 marks Gina Coulson has just contracted to sell a small parcel of land that she inherited a few years ago. The buyer is willing to pay R24 000 at closing of the transaction or will pay the amounts shown in the following table at the beginning of each of the next five years. Because Gina doesn’t really need the money today, she plans to let it accumulate in an account that earns 7% annual interest. Given her...
Question 5 18 marks Gina Coulson has just contracted to sell a small parcel of land...
Question 5 18 marks Gina Coulson has just contracted to sell a small parcel of land that she inherited a few years ago. The buyer is willing to pay R24 000 at closing of the transaction or will pay the amounts shown in the following table at the beginning of each of the next five years. Because Gina doesn’t really need the money today, she plans to let it accumulate in an account that earns 7% annual interest. Given her...
Solve the following: 1. You want to be a millionaire in 25 years. If you can...
Solve the following: 1. You want to be a millionaire in 25 years. If you can earn 10% on your investments, how much do you have to save each year to hit that $1,000,000 mark? Table______________________ 2. Amy is 65 and has $350,000 in her retirement account. An actuary has determined that if her investments earn 7%, she can withdraw $32,300 annually. How many more years does the actuary expect Amy to live? Table______________________ 3. Karla sued her landlord 5...
5. A certain species of tree has an average life span of 130 years. A researcher...
5. A certain species of tree has an average life span of 130 years. A researcher has noticed a large number of trees of this species washing up along a beach as driftwood. She takes core samples from 27 of those trees to count the number of rings and measure the widths of the rings. Counting the rings allows the researcher to determine the age of each tree. The average age of the trees in the sample is approximately 120...
The company has been growing steadily over the past 5 years, and the financials and future...
The company has been growing steadily over the past 5 years, and the financials and future prospects look good. Your CEO has asked you to run the numbers. After doing some digging into the business, you have gathered information on the following: The estimated purchase price for the equipment required to move the operation in-house would be $750,000. Additional net working capital to support production (in the form of cash used in Inventory, AR net of AP) would be needed...
Record of product launch success/failure over the last 25 years: COMPANY A # of successful products...
Record of product launch success/failure over the last 25 years: COMPANY A # of successful products (out of 10) … 0 1 2 3 4 5 6 7 8 9 10 … in # of years out of last 25 years 0 1 0 2 1 3 4 5 5 3 1 Record of product launch success/failure over the last 25 years: COMPANY B # of successful products (out of 10) … 0 1 2 3 4 5 6 7...
Which of the following distinguishes scenario analysis from sensitivity analysis? a. Scenario analysis only applies to...
Which of the following distinguishes scenario analysis from sensitivity analysis? a. Scenario analysis only applies to new product development projects. b. Sensitivity analysis only applies to new product development projects c. Sensitivity analysis involves changing one project variable at a time while scenario analysis involves changing more than one project variable at the same time d. Sensitivity analysis only applies when projects are mutually exclusive. 3. Which of the following statements is true regarding the internal rate of return (IRR)?...
A small factory is considering replacing an existing machine with a newer, more efficient one. Research...
A small factory is considering replacing an existing machine with a newer, more efficient one. Research and development costs associated with the replacement decision were $40,000 last year (2015). The existing machine was purchased three years ago at a cost of $230,000, and it is being fully depreciated according to a 5-year MACRs depreciation schedule. The current book value reflects that the firm has taken three years of depreciation. Because the company actively maintains its machinery and equipment, the CFO...
Business Description A friend who is an excellent baker has decided to open a cupcake store...
Business Description A friend who is an excellent baker has decided to open a cupcake store to sell gourmet cupcakes. They have asked you if you will be interested in investing $50,000 for a 50% ownership interest. Using the skills you have developed in ACCT 551 Accounting for Managers, you will analyze the business to determine if you will invest in the company. The business is scheduled to launch on July 1, 2018. Your friend has provided you with the...
Sepsis Case Study Review Scenario: At 12:00 noon, Jose Guerrero, a 17 year old high school...
Sepsis Case Study Review Scenario: At 12:00 noon, Jose Guerrero, a 17 year old high school student on the soccer team, arrives at the Emergency Department (ED) a few days after cutting his foot at practice. The area on his foot around the wound has progressively gotten red, tender, hot to the touch, and has some drainage. Today it caused pain when walking and he was feeling weak and had a temperature. His only medical history is a mild case...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT