5.17 Consider the following investment projects Projects Cash Flow.pdf
1. 5.17 Consider the following investment projects: Project's Cash Flow 0 $1,800-$5,200 $3,800-
$4,000-$6,500 1,000 3,600 2,400 -500 900 1,300 2,200 -700 2,500 -4,000 5,000 6,000 3,000 500
2,000 3,000 4,000 1,250 4,000 7,000 12,000 4 (a) Compute the future worth at the end of life for
each project at 1-12%. (b) Determine the acceptability of each project
Solution
Answer:
a) The formula being used = Compounding factor * cash flow
n = 0, Compounding factor = (1+0.12)^5 = 1.76
n = 1, Compounding factor = (1+0.12)^4 = 1.57
n = 2, Compounding factor = (1+0.12)^3 = 1.40
n=3, Compounding factor = (1+0.12)^2 = 1.25
n=4, Compounding factor = (1+0.12)^1 = 1.12
n=0, Compounding factor = (1+0.12)^0 = 1
So, multiplying compounding factor with cash flows we get future worth as below:
n
Compounding Factor
A
FW
B
FW
C
FW
D
FW
E
FW
0
1.76
-1800.00
-3172.22
-5200.00
-9164.18
-3800.00
-6696.90
