Consider he following A and B investment alternatives

Economics Aug 22, 2020

Consider he following A and B investment alternatives. Given that interest is 12% find X and Y? Project A($) Project B ($) Year 0 -X - 16000 ? 1 2 9000 8000 7000 ? 3 NPW 15000 13267 Y Select one: a. X= 13500, Y=8500 b. X= 14000, Y=7475 c. X= 11000, Y=7478 d. X= 13000, Y=8546 e. X= 11000, Y=8396 f. X= 12000, Y=10000

Expert Solution

Ans. Option e

Net present worth of Project B,

NPW = 13267 = -16000 + X/(1+0.12) + X/(1+0.12)^2 + 15000/(1+0.12)^3

=> X = $11000

Net present worth of Project A,

NPW = -11000 + 9000/(1+0.12) + 8000/(1+0.12)^2 + 7000/(1+0.12)^3

=> NPW = Y = $8395.73

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