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

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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 0 Year 1 Year 2 Year 3 Year 4 Year 5
Net Cash Flows ($) (10,000) 2,200 3,000 3,500 2,500 2,000
Retirement Values ($) 6,000 5,000 4,800 3,000 1,000
Kindly please explain the formula used and the way to approachthis type of question.
Thanks

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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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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

	Year 0	Year 1	Year 2	Year 3	Year 4	Year 5
Net Cash Flows ($)	(10,000)	2,200	3,000	3,500	2,500	2,000
Retirement Values ($)		6,000	5,000	4,800	3,000	1,000