problem: Consider the given investment projects:
|
Projects cash flows
|
|
n
|
A
|
B
|
C
|
D
|
|
0
|
($2,000)
|
($3,000)
|
($1,000)
|
|
|
1
|
1,000
|
4,000
|
1,400
|
($1,000)
|
|
2
|
1,000
|
|
-100
|
1,090
|
|
3
|
1,000
|
|
|
|
|
*i
|
23
|
33.33%
|
32.45%
|
9%
|
Assume that you have only 3,500 dollars available at period 0. Neither additional budgets nor borrowing are allowed in any future budget period. However, you can lend out any remaining funds [or available funds] at ten percent interest per period.
[A] If you want to maximize the future worth at period three, which projects would you select? Determine the future worth (the total amount available for lending at the end of period 3)? No partial projects are allowed.
[B] Assume in [A] that, at period 0, you are allowed to borrow $500 at an interest rate of 13 percent. The loan has to be repaid at the end of year 1. Which project would you select to maximize your future worth at period 3?
[C] Considering a lending rate of 10 percent & a borrowing rate of 13 percent, find the reasonable MARR for project evaluation?