ACTSC221 Lecture 1: chap7solstudent_notes.pdf

• School: University of Waterloo
• Department: Actuarial Science
• Course: ACTSC221
• Professor: Peter Khaiter

Document Summary

Part a: npv at 10% = 100 000 + 40 000(1. 10) 1 + 30 000(1. 10) 2 + 40 000(1. 10) 3. The investment should proceed: npv at 12% = 100 000 + 15 000(1. 12) 1 + 20 000(1. 12) 2 + 40 000(1. 12) 3. The investment should not proceed: at j1 = 4% : npv(a) = 200 000 + 50 000a5|. 04 = 591. 12. Choose project b: at j1 = 7% : npv (a) = 200 000 + 50 000a5|. 07 = . 87. Npv (b) = 200 000 + 100 000(1. 07) 2a3|. 07 = 217. 93. Choose project b: npv at 14% = 3 000 000 1 000 000(1. 14) 1 + 1 000 000a7|. 14(1. 14) 1 = $ 115 522. 07. Company should not proceed with the project: npv at 8% = 60 000 + 20 000(1. 08) 1 + 16 000(1. 08) 2 + 14 000(1. 08) 3. The company should borrow the money to buy the machine.