Two projects, A and B, are analyzed using ranking present worth analysis with MARR at i%. It is found that PW(A) . PW(B). If MAR

Question

2 years ago

15

R is changed to (i 1 1)%, what will be the relationship between PW(A) and PW(B)?

1 answer:

vivado [14] · Answer 1 · 2022-07-20T22:02:46+03:00

Answer: The relationship between A and B project cannot be determined with the information given.

Explanation: The relationship between PW(A) and PW(B) is the correlation between project A and Project B in a portfolio.

This is not possible to be calculated with the information given.

But an expression of calculating this is;

PW is the present value of A and B projects.

MARR is the minimum acceptable rate of return

The calculate the correlation of the two project, divide MARR by the multiple of the two project.

That is;

Correlation = MARR ÷ [PW(A) × PW(B)]

Therefore;

Correlation = i11% ÷ [PW(A) × PW(B)]

This shows that the relationship cannot be determined with the limited Information supplied.