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06 ModelHW6

# 06 ModelHW6 - Two mutually exclusive projects i= 12 Cash...

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Two mutually exclusive projects i= 12% Cash Flows n Proj A Proj B NPW A NPW B 0 \$(800) \$(2,635) \$(800) \$(2,635) 1 \$(1,500) \$(565) \$(1,339) \$(504) 2 \$(435) \$820 \$(347) \$654 3 \$775 \$820 \$552 \$584 4 \$775 \$1,080 \$493 \$686 5 \$1,275 \$1,880 \$723 \$1,067 6 \$1,275 \$1,500 \$646 \$760 7 \$975 \$980 \$441 \$443 8 \$675 \$580 \$273 \$234 9 \$375 \$380 \$135 \$137 10 \$660 \$840 \$213 \$270 Sum NPW= \$989 \$1,696 NPW for each cash flow is cash flow divided by (1+i)^n. Project B has a larger NPW, so project B should be chosen.

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Two mutually exclusive projects MARR= 15% Cash Flows n Proj. A NPW A Proj. B NPW B 0 \$(3,000) \$(3,000) \$(8,000) \$(8,000) 1 \$400 \$348 \$11,500 \$10,000 2 \$7,000 \$5,293 \$400 \$302 Sum NPW= \$2,641 Sum NPW= \$2,302 a) By NPW analysis, which should be chosen? Project A should be chosen, it has the larger NPW. b) Chart PW (A,B) from MARR = 0% to 50%. Over what range do you prefer project B? Answer: I prefer project A over the entire range. In general, projects with larger positive cash flows early will have better relative NPW's at high values of i, and those with later positive cash flows will do better at lower values of i. However, in this example, the NPW's do not cross over in the 0% to 50% range.
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