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Net present Value

1. Compare the economics of the two following service producing alternatives. Use present worth analysis and incremental analysis. Use NPV at i* = 15% and confirm your answer by calculating the ROR. All numbers are in 1000 of dollars.

Alternative A
C=200 OC=220 OC=220 OC=220 OC=220 L=50 Year 0 Year 1 Year 2 Year 3 Year 4

Alternative B
C=0 OC=300 OC=300 OC=300 OC=300 L=0 Year 0 Year 1 Year 2 Year 3 Year 4.

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Solution Preview

Please see the attachment for your response.

Alternative A
Year C/OC Discount @15% Present Value
0 200 1 200
1 220 0 .8696 191.3
2 220 0.7561 166.33
3 220 0.6575 144.65
4 220 0.5718 125.65
L 50 0.5718 28.59
Net present Value 856.69

Alternative ...

Solution Summary

Net present Value is applied and the details are provided in the solution.

$2.19