Is there anyone kind enough to solve this problem for me? I have my semester final ahead, and struggling with this problem. I am attaching my understanding too.
ps: also calculating for 30 years seems confusing
.IMG_2124.jpg IMG_2125.jpg
Is there anyone kind enough to solve this problem for me? I have my semester final ahead, and struggling with this problem. I am attaching my understanding too.
ps: also calculating for 30 years seems confusing
.IMG_2124.jpg IMG_2125.jpg
Last edited by Tayeeba; 12-05-2017 at 02:22 AM.
As far as I can tell:
Model A:
Cost: 50000
Revenue:
10000 : 1st 5 years
15000 : next 10 years
15th year salvage value: 5000
Calculation of PV:
-50000
+ PV of 10000 annually: n = 5, i = .10
+ PV of 15000 annually: n = 10, i = .10 : let that = x
+ PV of x over 5 years: x/(1.10^5)
+ PV of 5000 over 15 years: 5000/1.10^15
If I didn't goof, that results in net PV of 46334.22
I'm NOT doing the other 2 models!!
Note that 10000 for 15 years and 5000 for 10 years
would work out the same.
EDIT:
on this one:
+ PV of 15000 annually: n = 10, i = .10 : let that = x
That's the PV as at end of 5th year, of course;
result has to be PV'd again, for 5 years.
Last edited by Denis; 12-05-2017 at 04:52 PM.
I'm just an imagination of your figment !
you are right about the numbers of model A, for model B: first cost $40k, salvage value $2k, annual profet: $10k+$1k/year increase, life (years): 10.
model C: first cost $10k, salvage $0, annual profit $9k, life (years): 5.
i understand what you did for model A except the line PV of X over 5 years. Here you calculated the Future value of $15k for 5 years right? Why is that when the problem says $15k annuity for 10 years, (what you did the line before PV of X over 5 years). Please help me here. Youd did 15 K annuity for 10 years, but why again 15k future value for 5years?
also i need to convert every model’s life in 30 years right to do a fair comparison. So how can i find the value of 30 years for model A?
i just have these two problems with model A, Once understood, I can do B and C by myself.
thanks again Denis.
also can you please suggest me any YouTube video to get clear idea about marr,irr and err. I have read my textbooks but still have many confusions
No. I'll try and explain again.
(not easy without chalk/blackboard!)
Step 1: calculate PV of $15000 annuity over 10 years
15000 * (1 - 1/(1.10)^10 / .10 = ~92168
Since the $15000 begins in 5 years, then the above PV
is effective 5 years later than today.
So today, we look at that $92168 as a FV 5 years later,
and calculate its PV:
Step 2: calculate PV of 92168
92168 / 1.10^5 = ~57229
OK?
As far as extending to 30 years, seems we need
something more about salvage value, plus what
will the revenue be...still $15000 annually?
I'm just an imagination of your figment !
Hey, thanks I got it clearly now.1CE3FD6D-B379-44DF-B7B1-855BDF1A4215.jpg
also found the the value in 30 years too. It’s the value in 15 years+future value over next 15 years.
thanks a ton for helping me out.
In case this helps you...
Problem can be looked at as a savings account
starting in overdraft of -$50000 and the "annuities"
being deposited in this account; like this:
Present value: 193550 / 1.10^15 = 46334Code:YEAR DEPOSIT INTEREST BALANCE 0 -50000 1 10000 -5000 -45000 2 10000 -4500 -39500 3 10000 -3950 -33450 4 10000 -3345 -26795 5 10000 -2679 -19474 6 15000 -1947 - 6421 7 15000 - 642 7937 8 15000 794 23731 9 15000 2373 41104 10 15000 4110 60214 11 15000 6021 81235 12 15000 8123 104358 13 15000 10436 129794 14 15000 12979 157773 15 15000 15777 188550 15 5000 0 193550
Got that??
I'm just an imagination of your figment !
hello Denis, i did exactly in your way, but got different answer, will you please cross check my answer?0CE13816-11FD-4CF7-AD33-360F3B1B9421.jpg
Last edited by Tayeeba; 12-06-2017 at 01:49 PM.
Can't read your attachment; here's the steps:
PV of 10000 annuity, 5 years:
10000 * (1 - 1/1.10^5) / .10 = 37907.87 [1]
PV as at end of year5 of 15000 annuity, 10 years:
15000 * (1 - 1/1.10^10) / .10 = 92168.51
PV of above as at today: 92168.51 / 1.10^5 = 57229.39 [2]
PV salvage value, 15 years:
5000 / 1.10^15 = 1196.96 [3]
Net PV today:
-50000.00 + [1] + [2] + [3] = 46334.22
OK???
I'm just an imagination of your figment !
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