Dixie Dynamite Company is evaluating two methods of blowing up old buildings for commercial purposes over the next five years. Method one (implosion) is relatively low in risk for this business and will carry a 12 percent discount rate. Method two (explosion) is less expensive to perform but more dangerous and will call for a higher discount rate of 16 percent. Either method will require an initial capital outlay of $107,000. The inflows from projected business over the next five years are shown next. Years 1 2 a 3 4 5 Method 1 $ 34,100 37,900 39,900 39,700 24,400 Method 2 $ 19,700 31,500 40,500 38,800 77,000 Use Appendix B for an approximate answer but calculate your final answers using the formula and financial calculator methods. a. Calculate net present value for Method 1 and Method 2 Note: Do not round intermediate calculations and round your answers to 2 decimal places. Method 1 Method 2 Net Present Value
Dixie Dynamite Company is evaluating two methods of blowing up old buildings for commercial purposes over the next five years. Method one (implosion) is relatively low in risk for this business and will carry a 12 percent discount rate. Method two (explosion) is less expensive to perform but more dangerous and will call for a higher discount rate of 16 percent. Either method will require an initial capital outlay of $107,000. The inflows from projected business over the next five years are shown next. Years 1 2 a 3 4 5 Method 1 $ 34,100 37,900 39,900 39,700 24,400 Method 2 $ 19,700 31,500 40,500 38,800 77,000 Use Appendix B for an approximate answer but calculate your final answers using the formula and financial calculator methods. a. Calculate net present value for Method 1 and Method 2 Note: Do not round intermediate calculations and round your answers to 2 decimal places. Method 1 Method 2 Net Present Value
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:Dixie Dynamite Company is evaluating two methods of blowing up old buildings for commercial purposes over the next five years.
Method one (implosion) is relatively low in risk for this business and will carry a 12 percent discount rate. Method two (explosion) is less
expensive to perform but more dangerous and will call for a higher discount rate of 16 percent. Either method will require an initial
capital outlay of $107,000. The inflows from projected business over the next five years are shown next.
Years
1
2
3
4
5
Method 1
$ 34,100
37,900
39,900
39,700
24,400
Method 2
$ 19,700
31,500
40,500
38,800
77,000
Use Appendix B for an approximate answer but calculate your final answers using the formula and financial calculator methods.
a. Calculate net present value for Method 1 and Method 2.
Note: Do not round intermediate calculations and round your answers to 2 decimal places.
Method 1
Method 2
Net Present Value
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