Compute the resulting value of the equity capital

1.      When two or more alternatives are compared usi ng the PW, A W, or B/C method, there are three circumstances for which the length of time of the evaluation period is the same for all alternatives. List these three circumstances.

2.      For what evaluation methods IS it mandatory that an incremental cash flow series analysis be performed to ensure that the correct alternative is selected?

Two engineers place $10,000 each in different investments. MarylYlln invests $10,000 in airline stock, and Carla leverages the $10,000 by purchasing a $100,000 residence to be used as rental property.

Compute the resulting value of the $10,000 equity capital if there is a S% decrease in the value of both the stock and the residence. Do the same for a S% increase. Neglect any dividend, income, or tax considerations.

Solution:

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