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 lessexpensive to perform but more dangerous and will call for a higher discount rate of 17 percent. Either method will require an initialcapital outlay of $85,000. The inflows from projected business over the next five years are shown next.Years12345Method 1$ 30,00030,20039,30036,30025,700Method 2$ 20,20022,10037,10029,00077,100Use 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 1Method 2Net Present Value b. Which method should be selected using net present value analysis?O Method 1O Method 2ONeither of these

Net Present value is present value of cash flow minus initial investment.

Answered: Dixie Dynamite Company is evaluating…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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 $80,000. The inflows from projected business over the next five years are shown next. Years 1 2 3 4 5 Method 1 $ 31,700 36,800 46,900 35,200 26,500 Method 1 Method 2 Method 2 $ 19,800 30,600 34,500 34,700 70,400 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. Net Present Value analysis?

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