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I can't read everything in the scan of the exercise; for instance, items in the table are too small for me to see. Also, I can't read the sideways stuff. Please reply with clarification. Thank you!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
.View attachment 8787 View attachment 8788
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.
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?
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?
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'd rather you buy me for Xmas a pencil with eraser