CE40-2/E01

CE/2
M2-CPR
CLASS PRODUCED REVIEWER

Project D:
𝑃𝑊 = −$120000 + ($22000 − $700)(𝑃⁄𝐴 , 12%, 10) + $11000(𝑃⁄𝐹 , 12%, 10)
(1 + 𝑖)𝑛 − 1
𝑃𝑊 = −$120000 + $21300 ( ) + $11000((1 + 𝑖)−𝑛)
𝑖(1 + 𝑖)𝑛
(1 + 0.12)10 − 1
𝑃𝑊 = −$120000 + $21300 ( ) + $11000((1 + 0.12)−10 )
0.12(1 + 0.12)10
𝑷𝑾 = $𝟑𝟖𝟗𝟏. 𝟒𝟔

Since all of the alternatives have the same lives of 10 years, the project with the highest present worth will have the
highest equivalent worth. With the Present Worth Method, Project A should be chosen.

FUTURE WORTH (FW) METHOD

Project A:
𝐹𝑊 = −$150000(𝐹 ⁄𝑃 , 12%, 10) + ($28000 − $1000)(𝐹 ⁄𝐴 , 12%, 10) + $20000
(1 + 𝑖)𝑛 − 1
𝐹𝑊 = −$150000(1 + 𝑖)𝑛 + $27000 ( ) + $20000
𝑖
(1 + 0.12)10 − 1
𝐹𝑊 = −$150000(1 + 0.12)10 + $27000 ( ) + $20000
0.12
𝑭𝑾 = $𝟐𝟕𝟗𝟑𝟖. 𝟔𝟐

Project B:
𝐹𝑊 = −$85000(𝐹 ⁄𝑃 , 12%, 10) + ($16000 − $550)(𝐹 ⁄𝐴 , 12%, 10) + $10000
 (1 + 𝑖)𝑛 − 1
𝐹𝑊 = −$85000(1 + 𝑖)𝑛 + $15450 ( ) + $10000
𝑖
(1 + 0.12)10 − 1
𝐹𝑊 = −$85000(1 + 0.12)10 + $15450 ( ) + $10000
0.12
𝑭𝑾 = $𝟏𝟕𝟏𝟑𝟎. 𝟖𝟔

Project C:
𝐹𝑊 = −$75000(𝐹 ⁄𝑃 , 12%, 10) + ($15000 − $500)(𝐹 ⁄𝐴 , 12%, 10) + $6000
(1 + 𝑖)𝑛 − 1
𝐹𝑊 = −$75000(1 + 𝑖)𝑛 + $14500 ( ) + $6000
𝑖
(1 + 0.12)10 − 1
𝐹𝑊 = −$75000(1 + 0.12)10 + $14500 ( ) + $6000
0.12
𝑭𝑾 = $𝟐𝟕𝟓𝟏𝟖. 𝟎𝟒

Project D:
𝐹𝑊 = −$120000(𝐹 ⁄𝑃 , 12%, 10) + ($22000 − $700)(𝐹 ⁄𝐴 , 12%, 10) + $11000
(1 + 𝑖)𝑛 − 1
𝐹𝑊 = −$120000(1 + 𝑖)𝑛 + $21300 ( ) + $11000
𝑖
(1 + 0.12)10 − 1
𝐹𝑊 = −$120000(1 + 0.12)10 + $21300 ( ) + $11000
0.12
𝑭𝑾 = $𝟏𝟐𝟎𝟖𝟔. 𝟐𝟕

Since all of the alternatives have the same lives of 10 years, the project with the highest future worth will have the
highest equivalent worth. With the Future Worth Method, Project A should be chosen.