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FM11 19 - B = 9.256 ≈ $9.26 million Project A is the...

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11-16 Plane A: Expected life = 5 years; Cost = $100 million; NCF = $30 million; COC = 12%. Plane B: Expected life = 10 years; Cost = $132 million; NCF = $25 million; COC = 12%. 0 1 2 3 4 5 6 7 8 9 10 A: | | | | | | | | | | | -100 30 30 30 30 30 30 30 30 30 30 -100 -70 Answers and Solutions: 11 - 19 Enter these values into the cash flow register: CF 0 = -100; CF 1-4 = 30; CF 5 = -70; CF 6-10 = 30. Then enter I = 12, and press the NPV key to get NPV A = 12.764 $12.76 million. 0 1 2 3 4 5 6 7 8 9 10 B: | | | | | | | | | | | -132 25 25 25 25 25 25 25 25 25 25 Enter these cash flows into the cash flow register, along with the interest rate, and press the NPV key to get NPV
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Unformatted text preview: B = 9.256 ≈ $9.26 million. Project A is the better project and will increase the company's value by $12.76 million. The EAA of plane A is found by first finding the PV: N = 5, I/YR = 12, PMT = 30, FV = 0; solve for PV = − 108.143. The NPV is $108.143 − $100 = $8.143 million. We convert this to an equivalent annual annuity by inputting: N = 5, I/YR = 12, PV = − 8.143, FV = 0, and solve for PMT = EAA = 2.259 ≈ $2.26 million. For plane B, we already found the NPV of 9.256. We convert this to an equivalent annual annuity by inputting: N = 10, I/YR = 12, PV = − 9.256, FV = 0, and solve for PMT = EAA = 1.638 ≈ $1.64 million....
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