Question

3-If you have a budget to invest in one project, which project would you choose based on the PW(Present Worth) at i=15%?

Project A: Year 0: $-12,500, Year 1: $6,400, Year 2: $14,400, and Year 3: $7,200

Project B: Year 0: $-12,500, Year 1: $-3,000, Year 2: $23,000, and Year 3: $13,000

4. If you have a budget to invest in one project, which project would you choose based on AW(Annual Worth) at i=40%?

Project A: Year 0: $-12,500, Year 1:$6,400, Year 2: $14,400, and Year 3: $7,200

Project B: Year 0: $-12,500, Year 1: $-3,000, Year 2: $23,000, and Year 3: $13,000

Answer 1

3.Present Worth=Present value of cash inflows-Presentvalue of cash outflows

Project A=[6400/1.15+14400/1.15^2+7200/1.15^3]-12500=[5565+10888+4734]-12500=21187-12500=8687

Project B=[3000/1.15+23000/1.15^2+13000/1.15^3]-12500=[2608+17391+8547]-12500=28546-12500=16046

Project B shouldbe chosen on the basis of Net Worth.

4.Project A=[6400/1.40+14400/1.40^2+7200/1.40^3]-12500=[4571+7347+2624]-12500=2042

Annual worth=NPV/anuity factor=2042/1.588=1285

Project B=[3000/1.40+23000/1.40^2+13000/1.40^3]-12500=[2142+11734+4737]-12500=6113

Annual woth=6113/1.588=3849

Project B should be chosen on the basis of annual worth.