Assume Merck (MRK) just announced that its next dividend will be $2, paid one year from now (you just missed the prior annual di
1 answer:
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Answer:
A post audit is only necessary for a capital investement selected using a technique that does not consider the time value of money
Explanation:
A post audit defines the analysis of an outcome with respect to the capital budgeting investment. It is to be conducted at the closing of the period. Also it measures whether the project should be accepted or rejected via details assumption analysis but also it considered the times value of the money
Therefore the above statement should be considered
And, hence, the other options should be considered as wrong
Answer:
Note <em>The full question is attached as picture below</em>
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a. B-C ratio = Equivalent annual worth of Benefits / Equivalent annual worth of costs
<u>Alternative A</u>
B-C ratio = Equivalent annual worth of Benefits for alternative A / Equivalent annual worth of costs for alternative A
B-C ratio = (Power Sales + Annual benefits from new industry) / ((Capital cost * Annuity factor(5%,50 years)) + Operating and maintenance costs costs)
B-C ratio = ($1,000,000 + $500,000) / (($20,000,000*(0.05 / (1 - 1.05^(-50))) + $200,000)
B-C ratio = ($1,500,000 / ($1,095,534.71 + $200,000))
B-C ratio = $1,500,000 / $1,295,534.71
B-C ratio = 1.1578
B-C ratio = 1.16
<u>Alternative B</u>
B-C ratio = Equivalent annual worth of Benefits for alternative B / Equivalent annual worth of costs for alternative B
B-C ratio = (Power Sales + Sum of all Annual benefits) / ((Capital cost*Annuity factor (5%,50 years)) + Operating and maintenance costs costs)
B-C ratio = ($800,000 + $600,000 + $400,000 + $200,000 + $100,000) / ($30000000 *(0.05/(1-1.05^(-50))) + $100,000)
B-C ratio = $2,100,000 / ($1,643,302 + $100,000)
B-C ratio = 1.2046
B-C ratio = 1.20
Conclusion: Alternative B should be selected because it has higher B/C ratio.
b Incremental B-C ratio for final pair = (Equivalent Annual Benefits of B - Equivalent Annual Benefits of A) / (Equivalent annual costs of B - Equivalent annual costs of A)
Incremental B-C ratio for final pair = ($2,100,000 - $1,500,000) / ($1,743,302 - $1,295,534.71)
Incremental B-C ratio for final pair = $600,000 / $447,767.29
Incremental B-C ratio for final pair = 1.339982
Incremental B-C ratio for final pair = 1.34
