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21 October, 19:20

Cash flows of two mutually exclusive projects are as follows. Project A costs $80,000 initially and will have a $15,000 salvage value after 3 years. The operating cost with this method will be $30,000 per year. Project B has initial cost of $120,000, an operating cost of $8,000 per year, and a $40,000 salvage value after its 3-year life. Assume the interest rate is 10% per year. Which of the following statements is true? A. Two projects have different life cycleB. Project A should be selected. C. The present worth of project A is - $143,252.17. D. The present worth of project B is - $109,842.22.

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  1. 21 October, 19:39
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    C. The present worth of project A is - $143,252.17

    Explanation:

    Present worth can be calculated using a financial calculator

    For method A,

    Cash flow in year 0 = $80,000

    Cash flow in year 1 and 2 = $30,000

    Cash flow in year 3 = $30,000 - $15,000 = $15,000

    I = 10%

    Present worth = $ 143,335.84

    For method B,

    Cash flow in year 0 = $120,000

    Cash flow in year 1 and 2 = $8, 000

    Cash flow in year 3 = $8,000 - $40,000 = $-32,000

    I = 10%

    Present worth = $130,157.78

    Method b would is chosen because it worth less.

    To find the present worth using a financial calacutor:

    1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

    2. After inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

    3. Press compute
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