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Consider two plans A and B with the details shown in the table below. a. Take a 5% discount rate. Compare the net present worth
Consider two plans A and B with the details shown in the table below. a. Take a 5% discount rate. Compare the net present worth for both plans. Which plan is cheaper? b. Perform a sensitivity analysis to study the sensitivity of the present worth of each plan to the value of interest rate. Consider an interest rate ranging from 0% to 20%. To do this, you need to do the following 1. Find the present worth of plan A if the interest rate is 0%. Call this (PWAi=0%). Then, find (PWAi=1%),(PWAi=2%),,(PWAi=20%). 2. Plot PWA vs. i. Call this Figure 1. 3. Find the present worth of plan B if the interest rate is 0%. Call this (PWBi=0%). Then, find (PWBi=1%),(PWBi=2%),,(PWBi=20%). 4. Plot PWB Vs. I on the same figure (Figure 1). c. Answer the following questions based on the sensitivity analysis you performed in the previous part: 1. Which plan is more sensitive to the value of the discount rate? Justify/explain. 2. Does any of the two plans turn profitable? Which plan? At what discount rate? 3. At what discount rate do both plans have the same present worth
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