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Homework answers / question archive / 1)The cash flows (in KD) for two mutually exclusive alternatives in Kuwait are as in the table below: [4] Y ? n X-Y 0 -3,000 -12,000 -9,000 2,850 1 1,350 4,200 2 1,800 6,225 4,425 3 1,500 6,330 4,830 ROR (%) 23 18 15 a

1)The cash flows (in KD) for two mutually exclusive alternatives in Kuwait are as in the table below: [4] Y ? n X-Y 0 -3,000 -12,000 -9,000 2,850 1 1,350 4,200 2 1,800 6,225 4,425 3 1,500 6,330 4,830 ROR (%) 23 18 15 a

Accounting

1)The cash flows (in KD) for two mutually exclusive alternatives in Kuwait are as in the table below: [4] Y ? n X-Y 0 -3,000 -12,000 -9,000 2,850 1 1,350 4,200 2 1,800 6,225 4,425 3 1,500 6,330 4,830 ROR (%) 23 18 15 a. Which project would you select at MARR = 20%? Why? [2] b. Which of the two alternatives is not financially viable? Why? [2] 2. The equivalent annual worth of an increasing arithmetic gradient is $55,400. If the cash flow in year 1 is $17,000 and the gradient amount is $11,000, what is the value of n at an interest rate of 8% per year? [4]

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1. A. Calculating NPV (net present value) of investments

X 'NPV = cashflow/discounting factor

= -3000+1350/1.2+1800/1.2^2+1500/1.2^3 = -3000+1125+1250+868.06 = 243.06

Y'NPV = Cashflow/discounting factor =-12000+4200/1.2+6225/1.2^2+6330/1.2^3 = -12000+3500+4322.92+3663.19 = -513.89

Note:- discounting factor = MARR^n

The project is X is more beneficial than Project Y as at MARR =20% project X shows positive NPV while project Y shows negative NPV

B. Project Y is not financially viable as at high investment , investor get lower RoR as compared to X where investor earn High Rate of return (RoR) at lower investment

2.

Explanation of term in question :- arithmetic gradient series is a cash flow series that either increases or decreases by a constant amount each period. The amount of change is called the gradient.

So this implies we get cash starting from year 1 amounting to 17400

And that increases every year with 11000

Now its present value at 8%

= 17400/1.08+11000*((1+1.08^n)/.08+n*1.08^-n)/.08

Where the above is formula used for increasing annuity

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