Kenneth Clark is evaluating two new business opportunities. Each of the opportunities shown below has a 15-year life. Kenneth uses a 12% discount rate. Option 1 Option 2 Equipment purchase and installation $72,000 $83,270 Annual cash flow $28,800 $30, 860 Equipment overhaul in year 6 $4,620 - Equipment overhaul in year 8 - $5,990 Click here to view the factor table. (a) Calculate the net present value of the two opportunities. (Round present value factor calculations to 4 decimal places, e.g. 1.2514 and the final answers to 0 decimal places, e.g . 59,991.) Option 1 Option 2 Net present value Senter a dollar amount rounded to 0 decimal places Senter a dollar amount rounded to 0 decimal places eTextbook and Media Attempts: 0 of 3 used (b) Calculate the profitability index of the two opportunities. (Round answers to 2 decimal places, e.g. 15.25.) Option 1 Option 2 Profitability Index enter profitability index rounded to 2 decimal places enter profitability index rounded to 2 decimal places eTextbook and Media Attempts: 0 of 3 used (c) Which option should Kenneth choose? Kenneth should choose select an option
Kenneth Clark is evaluating two new business opportunities. Each of the opportunities shown below has a 15-year life. Kenneth uses a 12% discount rate. Option 1 Option 2 Equipment purchase and installation $72,000 $83,270 Annual cash flow $28,800 $30, 860 Equipment overhaul in year 6 $4,620 - Equipment overhaul in year 8 - $5,990 Click here to view the factor table. (a) Calculate the net present value of the two opportunities. (Round present value factor calculations to 4 decimal places, e.g. 1.2514 and the final answers to 0 decimal places, e.g . 59,991.) Option 1 Option 2 Net present value Senter a dollar amount rounded to 0 decimal places Senter a dollar amount rounded to 0 decimal places eTextbook and Media Attempts: 0 of 3 used (b) Calculate the profitability index of the two opportunities. (Round answers to 2 decimal places, e.g. 15.25.) Option 1 Option 2 Profitability Index enter profitability index rounded to 2 decimal places enter profitability index rounded to 2 decimal places eTextbook and Media Attempts: 0 of 3 used (c) Which option should Kenneth choose? Kenneth should choose select an option
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:Kenneth Clark is evaluating two new business opportunities. Each of the opportunities shown
below has a 15-year life. Kenneth uses a 12% discount rate. Option 1 Option 2 Equipment
purchase and installation $72,000 $83,270 Annual cash flow $28,800 $30, 860 Equipment
overhaul in year 6 $4,620 - Equipment overhaul in year 8 - $5,990 Click here to view the factor
table. (a) Calculate the net present value of the two opportunities. (Round present value factor
calculations to 4 decimal places, e.g. 1.2514 and the final answers to 0 decimal places, e.g
. 59,991.) Option 1 Option 2 Net present value Senter a dollar amount rounded to 0 decimal
places Senter a dollar amount rounded to 0 decimal places eTextbook and Media Attempts: 0 of 3
used (b) Calculate the profitability index of the two opportunities. (Round answers to 2 decimal
places, e.g. 15.25.) Option 1 Option 2 Profitability Index enter profitability index rounded to 2
decimal places enter profitability index rounded to 2 decimal places eTextbook and Media
Attempts: 0 of 3 used (c) Which option should Kenneth choose? Kenneth should choose select an
option.
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