Effects of Economic Policies on Technological Enterprises

Effects of Economic Policies on Technological Enterprises
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Effects of Economic Policies on Technological Enterprises
The costs and benefits of each option as follows:
Option AOption BYearCost in year ($)Benefit in year ($)Cost in year ($)Benefit in year ($)05,000,00001,600,000500,0001220,000700,000450,000560,0002225,000800,000460,000580,0003240,000850,000480,000610,0004246,000900,000500,000650,0005250,0001,000,000520,000700,0006255,0001,200,000540,000750,0007260,0001,400,000550,000800,0008265,0001,450,000570,000900,0009270,0001,300,000580,000880,00010275,0001,100,000600,000860,000
In the Excel, the following discounting rates and Present value factors were used;
Year10%8%6%Disc. Rate PV FactorDisc. Rate PV FactorDisc. Rate PV Factor01.00001.00001.00001.00001.00001.000011.10000.90911.08000.92591.06000.943421.21000.82641.16640.85731.12360.890031.33100.75131.25970.79381.19100.839641.46410.68301.36050.73501.26250.792151.61050.62091.46930.68061.33820.747361.77160.56451.58690.63021.41850.705071.94870.51321.71380.58351.50360.665182.14360.46651.85090.54031.59380.627492.35790.42411.99900.50021.68940.5919102.59370.38552.15890.46321.79080.5584NB: The Discounting Rates are obtained from the following formula


And the Present Value Factor was obtained using the formula:


For instance, in Year 3 at 8%;


= 1.2597
And Present Value Factor;


= 0.7938
This procedure is repeated for all the years and discount rates provided that is 10%, 8% and 6% as illustrated in the formulas provided within the excel work sheet.
Option A: Initial Investment is $ 5,000,000: Discount Rate = 8.0%
YearCost p.a. ($)Benefit p.a. ($)Net Benefit p.a. ($)NPV= B/(1+r)n05,000,0000-5,000,000-5,000,0001220,000700,000480,000444,4322225,000800,000575,000492,947.53240,000850,000610,000484,2184246,000900,000654,000480,6905250,0001,000,000750,000510,4506255,0001,200,000945,000595,5397260,0001,400,0001,140,000665,1908265,0001,450,0001,185,000640,255.59270,0001,300,0001,030,000515,20610275,0001,100,000825,000382,140TOTAL3,194,000211,068
Option B: Initial Capital Investment = $ 1,600,000; Discounting Rate = 8.0%
YearCost p.a. ($)Benefit p.a. ($)Net Benefit p.a. ($)NPV= B/(1+r)n01,600,000500,000-1,100,000-1,100,0001450,000560,000110,000101,8492460,000580,000120,000102,8763480,000610,000130,000103,1944500,000650,000150,000110,2505520,000700,000180,000122,5086540,000750,000210,000132,3427550,000800,000800,000466,8008570,000900,000330,000178,2999580,000880,000300,000150,06010600,000860,000860,000398,352TOTAL2,090,000766,530
; Option B is Preferred
The difference between the two options is clearly noted within the above tables. According to the results of the table, Option B achieves higher positive Net Present Value as compared to Option A. However, it has to be noted that Option A employed a higher amount of initial investment that is $ 5,000,000 compared to that of B $ 1,600,000. All through the years, Option A received higher amounts of cash flows hence net benefits translating into high amounts of Net Present Values. Since there is significant difference between initial capital investment in Option A and Option B, there is no period when the two options actually achieved a more or less the same amount in terms of benefits of Net Present Value. In conclusion, Option B had a higher positive NPV of $ 766,530 compared to that of Option A having NPV of $ 211,068. Therefore, the manufacturer should opt for B after all it employs lower initial capital outlay but yields the highest NPV after the 10 lifespan.
Option A: Initial Investment = 5,000,000: Discounting Rate = 10.0%
YearCost p.a. ($)Benefit p.a. ($)Net Benefit p.a. ($)NPV= B/(1+r)n05,000,0000-5,000,000-5,000,0001220,000700,000480,000436,3682225,000800,000575,000475,1803240,000850,000610,000458,2934246,000900,000654,000446,6825250,0001,000,000750,000465,6756255,0001,200,000945,000666,2257260,0001,400,0001,140,000585,0488265,0001,450,0001,185,000552,802.59270,0001,300,0001,030,000436,82310275,0001,100,000825,000318,037.5TOTAL3,194,000-158,866
Option B: Initial Capital Investment = $ 1,600,000; Discounting Rate = 10.0%
YearCost p.a. ($)Benefit p.a. ($)Net Benefit p.a. ($)NPV= B/(1+r)n01,600,000500,000-1,100,000-1,100,0001450,000560,000110,000100,0012460,000580,000120,00099,1683480,000610,000130,00097,6694500,000650,000150,000102,4505520,000700,000180,000111,7626540,000750,000210,00...