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Copy of Given the following information and options, calculate the optimal life of the project. Assume...

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Finance

Copy of Given the following information and options, calculatethe optimal life of the project. Assume the cost of capital is 10%p.a. Maximum life is five years and replacement of like withlike..

Year 0Year 1Year 2Year 3Year 4Year 5
Net Cash Flows ($)(10,000)2,2003,0003,5002,5002,000
Retirement Values ($)6,0005,0004,8003,0001,000

Kindly please explain the formula used and the way to approachthis type of question.

Thanks

Answer & Explanation Solved by verified expert
4.0 Ratings (725 Votes)
i Year 1 replacement Net present value NPV Present value P V of cash inflows Present value of cash outflow Now NPV Cash flow Retirement value at year 1 1 in P V of cash outflow Here i Interest or cost of capital 10 or 010 n no Of years NPV 2200 6000 1 0101 10000 NPV 8200 110 10000 254545 ii Year 2 replacement NPV Cash flow year 11in Cash flow year 2 Replacement value year 21in P V Of cash outflow NPV    See Answer
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Transcribed Image Text

Copy of Given the following information and options, calculatethe optimal life of the project. Assume the cost of capital is 10%p.a. Maximum life is five years and replacement of like withlike..Year 0Year 1Year 2Year 3Year 4Year 5Net Cash Flows ($)(10,000)2,2003,0003,5002,5002,000Retirement Values ($)6,0005,0004,8003,0001,000Kindly please explain the formula used and the way to approachthis type of question.Thanks

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