Consider two plans A and B with the details shown in the table below. Plan A...
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Consider two plans A and B with the details shown in the table below. Plan A 500 35 10 Revenue (SR/yr) 50 Salvage value (SR) 30 Life time (yr) 15 a. Take a 5% discount rate. Compare the net present worth for both plans. Which plan is cheaper? b. Perform a sensitivity analysis to study the sensitivity of the present worth of each plan to the value of interest rate. Consider an interest rate ranging from 0% to 20%. To do this, you need to do the following 1. Find the present worth of plan A if the interest rate is 0%. Call this (PW₁|i=0%). Then, find (PWA|I=1%), (PWA|i=2%), ..., (PWA | I=20%). 2. Plot PWA vs. i. Call this Figure 1. 3. Find the present worth of plan B if the interest rate is 0%. Call this (PWB | i=0%). Then, find (PWB | i=1%), (PWB | i=2%), ..., (PWB | i=20%). 4. Plot PWB vs. I on the same figure (Figure 1). c. Answer the following questions based on the sensitivity analysis you performed in the previous Investment cost (SR) Operational cost (SR/yr) Maintenance cost (SR/yr) Plan B 1000 50 10 150 450 10 part: 1. Which plan is more sensitive to the value of the discount rate? Justify/explain. 2. Does any of the two plans turn profitable? Which plan? At what discount rate? 3. At what discount rate do both plans have the same present worth? Consider two plans A and B with the details shown in the table below. Plan A 500 35 10 Revenue (SR/yr) 50 Salvage value (SR) 30 Life time (yr) 15 a. Take a 5% discount rate. Compare the net present worth for both plans. Which plan is cheaper? b. Perform a sensitivity analysis to study the sensitivity of the present worth of each plan to the value of interest rate. Consider an interest rate ranging from 0% to 20%. To do this, you need to do the following 1. Find the present worth of plan A if the interest rate is 0%. Call this (PW₁|i=0%). Then, find (PWA|I=1%), (PWA|i=2%), ..., (PWA | I=20%). 2. Plot PWA vs. i. Call this Figure 1. 3. Find the present worth of plan B if the interest rate is 0%. Call this (PWB | i=0%). Then, find (PWB | i=1%), (PWB | i=2%), ..., (PWB | i=20%). 4. Plot PWB vs. I on the same figure (Figure 1). c. Answer the following questions based on the sensitivity analysis you performed in the previous Investment cost (SR) Operational cost (SR/yr) Maintenance cost (SR/yr) Plan B 1000 50 10 150 450 10 part: 1. Which plan is more sensitive to the value of the discount rate? Justify/explain. 2. Does any of the two plans turn profitable? Which plan? At what discount rate? 3. At what discount rate do both plans have the same present worth?
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To compare the net present worth of plans A and B and perform a sensitivity analysis we will use the given details and discount rates ranging from 0 to 20 Lets calculate the present worth for each pla... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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