You are given TWO plans to join a professional association. an X requires a payment of $185
Question:
You are given TWO plans to join a professional association. an X requires a payment of $185 starting in year 0, and three other equal payments of $185, for years ONE, TWO and THREE. Plan Y requires a One- time payment of $500 NOW and no further payments. Assuming an analysis period of 4 years, which plan would you select based on Rate of Return method. The required MARR is 10%.
a. Draw the cash flow diagrams for the two alternatives
b. Complete the cash flow table & the differential cash flow Differential Cash Flow Year
year | Plan-x | Plan-y | Differential Cash Flow |
c. Draw the differential cash flow diagram
d. Calculate ROR
What is the calculated ROR? ____________
e. Selection criteria: ______________
e. Decision - Choose Alt._______
An Introduction to the Mathematics of Financial Derivatives
ISBN: 978-0123846822
3rd edition
Authors: Ali Hirsa, Salih N. Neftci