Hydro Ottawa has two options for upgrading a natural gas power station to meet new government standards. Option 1: Hydro Ottawa will make the upgrades themselves. This is expected to cost $12,700 at the end of each month for 12 years. At the end of the operation (in 12 years) Hydro Ottawa expects to sell all equipment needed for the upgrade for $122,000. Option 2: Pay experienced contractors. This will cost $28,000 up front and $13,900 monthly (at the end of every month) for 15 years. Assume all interest is 3.72% compounded monthly. Round the answers to NPV (Option 1), and NPV (Option 2) to the nearest dollar. Round all other answers to two decimal places where applicable. 1) Find the net present value of option 1: P/Y = C/Y = N II = I/Y = PV = PMT= FV = Payments (Cost) $ $ $ % Sale of equipment (Residual) $ $ $ %
Hydro Ottawa has two options for upgrading a natural gas power station to meet new government standards. Option 1: Hydro Ottawa will make the upgrades themselves. This is expected to cost $12,700 at the end of each month for 12 years. At the end of the operation (in 12 years) Hydro Ottawa expects to sell all equipment needed for the upgrade for $122,000. Option 2: Pay experienced contractors. This will cost $28,000 up front and $13,900 monthly (at the end of every month) for 15 years. Assume all interest is 3.72% compounded monthly. Round the answers to NPV (Option 1), and NPV (Option 2) to the nearest dollar. Round all other answers to two decimal places where applicable. 1) Find the net present value of option 1: P/Y = C/Y = N II = I/Y = PV = PMT= FV = Payments (Cost) $ $ $ % Sale of equipment (Residual) $ $ $ %
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
Problem 1PS
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Transcribed Image Text:Hydro Ottawa has two options for upgrading a natural gas power station to meet new
government standards.
Option 1: Hydro Ottawa will make the upgrades themselves. This is expected to cost
$12,700 at the end of each month for 12 years. At the end of the operation (in 12 years)
Hydro Ottawa expects to sell all equipment needed for the upgrade for $122,000.
Option 2: Pay experienced contractors. This will cost $28,000 up front and $13,900
monthly (at the end of every month) for 15 years.
Assume all interest is 3.72% compounded monthly.
Round the answers to NPV (Option 1), and NPV (Option 2) to the nearest dollar.
Round all other answers to two decimal places where applicable.
1) Find the net present value of option 1:
P/Y =
C/Y =
N =
I/Y =
PV =
PMT=
FV =
Payments (Cost)
GA
%
Sale of equipment
(Residual)
GA
GA
LA
%
Transcribed Image Text:(If the NPV is negative, enter it as a negative number. If the NPV is zero, enter 0.)
NPV (Option 1) = $
2) Find the net present value of option 2:
P/Y
C/Y
N
I/Y
PV
PMT
FV
NPV (Option 2) = $
Payments (Cost)
to
(rounded to the nearest whole number)
SA
GA
(If the NPV is negative, enter it as a negative number. If the NPV is zero, enter 0.)
%
(round to the nearest whole number)
3) Which option should Hydro Ottawa choose?
O Option 1
O Option 2
O Either option could be chosen
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