Module25HWSol

# Module25HWSol - Abandon 3 rd quarter PW(5 =-\$11.9M \$6M(P/A...

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Module 25 Chapter 16 A1 a) Abandon now: PW(0.75%) = -\$10M + \$150M =\$140M Abandon next month: PW(0.75%) = [(750 × \$4500) -\$10M + \$150M - \$2.5M]/(1.0075) =\$139.8M Additional calculations indicate that PW(0.75%) decreases as the decision to abandon is pushed back. Hence the project should be abandoned immediately. A2 a) Abandon now: PW(5%) = -\$11.9M + \$6M(P/A, 5%, 5) = \$14.08M Abandon 1 st quarter: PW(5%) = [-\$11.9M + \$6M(P/A, 5%, 4)] (P/F, 5%, 1) = \$8.93M Abandon 2 nd quarter: PW(5%) = [-\$11.9M + \$6M(P/A, 5%, 3)] (P/F, 5%, 2) = \$4.23M
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Unformatted text preview: Abandon 3 rd quarter: PW(5%) = [-\$11.9M + \$6M(P/A, 5%, 2)] (P/F, 5%, 3) = -\$0.71M Abandon 4 th quarter: PW(5%) = [-\$11.9M + \$6M(P/A, 5%, 1)] (P/F, 5%, 4) = -\$5.89M Abandon 5 th quarter: PW(5%) = -\$10M(P/F, 5%, 5) = -\$9.52M The facility should be closed immediately. A3 a) Abandon now: PW(4.5%) = [-\$20M - (18 × \$0.1M)] (P/F, 4.5%, 1) = -\$20.86M Abandon 1 st quarter: PW(4.5%) = [(18 × \$1.5M) - \$10M] (P/F, 5%, 1) - \$20M (P/F, 5%, 2)= -\$2.08M The facility should be kept for at least 1 more quarter....
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