Ch6 Lecture Notes

# Ch6 Lecture Notes - Chapter 6 Annual Worth Analysis BofA's...

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Chapter 6 Annual Worth Analysis

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BofA's Countrywide Acquisition Dumb And Dumber In the run-up to Bank of America's ( BAC ) acquisition of Countrywide Financial ( CFC ), the media was abuzz with speculation that the U.S's largest mortgage lender would close shop. Just about when everyone was expecting Countrywide to roll over and die, in comes Bank of America's \$4.1 billion all-stock offer for the beleaguered mortgage lender. Relieved that the nation largest mortgage lender had been rescued from bankruptcy , the market jumped on this news. Now that the dust has settled, it is a good time to scrutinize the marriage between Bank of America and Countrywide. The biggest question investors are asking is, was this the right move? My answer is a resounding NO. This merger is doomed to fail even before the ink has dried…
Status report Project status report due on March 5 (at the beginning of class). Have a list of your sources, outline of work you plan to accomplish and brief description of work already done. [What is your plan?] 1pg – typed

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Advantages of Annual Worth Popular Analysis Technique Easily understood results are reported in \$ / time period Eliminates the LCM problem associated with the present worth method Only have to evaluate one life cycle of a project 5

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Annual Worth Calculations Generally, A = P(A/P, i%, n) A = F(A/F, i%, n) Convert all cash flows to their end of period equivalent amounts For comparison, in Example 5.2 about office lease options, a P analysis was performed over 18 years, the LCM of 6 and 9 years . 6
A project engineer with EnvironCare is assigned to start up a new office in a city where a 6-year contract has been finalized to take and analyze ozone-level readings. Two lease options are available, each with a first cost, annual lease cost, and deposit-return estimates shown below. 7 Determine which lease option should be selected on the basis of a present worth comparison, if the MARR is 15% per year. Present Worth Example: Unequal lives

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Comparison must be made over equal time periods; Compare over the least common multiple, LCM . Since the leases have different terms (service lives), compare them over the LCM of 18 years. For life cycles after the first, the first cost is repeated in year 0 of each new cycle, which is the last year of the previous cycle. These are years 6 and 12 for location A and year 9 for B. The cash flow diagram is in Figure 5–2.
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Ch6 Lecture Notes - Chapter 6 Annual Worth Analysis BofA's...

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