When accounting for a long-term construction contract for which revenue is recognized over time according to the percentage of c
1 answer:
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Answer:
present worth A: 513,821.51
present worth B: 431,013.1
<u><em>We should choose option B as the present worth is lower.</em></u>
<u><em>the IRR cannot be calculated </em></u>when all teh cashflow are negative as it the rate which makes the present value equal to zero. that means it will discount either the negative or postive subsequent cashflow to match an initial of the opposite sign.
Explanation:
For the intenal rate of return we must look for which rate makes the cost equal to zero.
For the opportunity cost, we solve for the present value of eahc discounted at the given rate of 9%
<em>Method A</em>
discount rate 0.09
# Cashflow Discounted
0 300000 300000
1 66000 60550.46
2 66000 55550.88
3 66000 50964.11
4 66000 46756.06
NPV 513821.51
<em>Method B</em>
# Cashflow Discounted
0 120000 120000
1 96000 88073.39
2 96000 80801.28
3 96000 74129.61
4 96000 68008.82
NPV 431013.1