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 17 percent. Either method will require an initial capital outlay of $85,000 The inflows from projected business over the next five years are shown next Method I $ 30,000 30,200 39,300 36,300 25,700 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 c 1 2 3 5 Method 2 $ 20,200 22,100 Method 1 Method 2 37,100 29,000 77,100 Net Present Value b. Which method should be selected using net present value analysis? O Method 1 O Method 2 O Neither of these ers to 2 decimal places.
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 17 percent. Either method will require an initial capital outlay of $85,000 The inflows from projected business over the next five years are shown next Method I $ 30,000 30,200 39,300 36,300 25,700 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 c 1 2 3 5 Method 2 $ 20,200 22,100 Method 1 Method 2 37,100 29,000 77,100 Net Present Value b. Which method should be selected using net present value analysis? O Method 1 O Method 2 O Neither of these ers to 2 decimal places.
Chapter1: Financial Statements And Business Decisions
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 17 percent. Either method will require an initial
capital outlay of $85,000 The inflows from projected business over the next five years are shown next.
Method 1
$ 30,000
30,200
39,300
36,300
25,700
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.
Years
1
4
Method 21
$ 20,200
22,100
Method 1
Method 2
37,100
29,000
77,100
Net Present Value
b. Which method should be selected using net present value analysis?
O Method 1
O Method 2
ONeither of these
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