Module25HWSol - Abandon 3 rd quarter: PW(5%) = [-$11.9M +...

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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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