Solved problem on future worth method - 1
Solved problem on future worth method - 1
Compare
the following two alternatives X and Y as per the given data:
Alternative
|
End of years
|
||||
0
|
1
|
2
|
3
|
4
|
|
X (₹)
|
-
40,00,000
|
15,00,000
|
15,00,000
|
15,00,000
|
15,00,000
|
Y (₹)
|
-35,00,000
|
12,00,000
|
12,00,000
|
12,00,000
|
12,00,000
|
Select the best alternative based on future
worth method at i = 12%.
Given data
Method
= Future worth method - revenue dominated cash flow
i
= 12%
n
= 4
Proposal X
P
= ₹. 40,00,000
R1
= R2 = R3 = R4 = A = ₹.
15,00,000
S
= ₹. 0
Proposal Y
P
= ₹. 35,00,000
R1
= R2 = R3 = R4 = A = ₹.
12,00,000
S
= ₹. 0
Formula used
Here
revenue on all years is equal.
Therefore,
FW(i) = -P (F/P, i, n) + A (F/A, i, n) + S
Solution
Alternative X
FW(12%)1 = - 40,00,000 (F/P, 12%, 4)+ 15,00,000
(F/A, 12%, 4) + 0
= - 40,00,000 (1.574) + 15,00,000
(4.779)
= - 62,96,000 + 71,68,500
FW(12%)1 = ₹. 8,72,500
Alternative Y
FW(12%)2 = - 35,00,000 (F/P, 12%, 4)+ 12,00,000 (F/A, 12%, 4) + 0
= - 35,00,000 (1.574)+ 12,00,000
(4.779)
= - 55,09,000 + 57,34,800
FW(12%)2 = ₹. 2,25,800
Result
In future worth
method revenue dominated cash flow, the alternative which has maximum future
worth amount is the best alternative. Therefore the alternative X is the best
alternative.