Michael Jones is evaluating two new business opportunities. Each of the opportunities shown below has a 15-year life. Michael uses a 12% discount rate. Option 1 Option 2 $71,700 $28,200 Equipment purchase and installation $82,540 Annual cash flow $30,690 Equipment overhaul in year 6 $4,750 Equipment overhaul in year 8 $6,060 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 %24
Michael Jones is evaluating two new business opportunities. Each of the opportunities shown below has a 15-year life. Michael uses a 12% discount rate. Option 1 Option 2 $71,700 $28,200 Equipment purchase and installation $82,540 Annual cash flow $30,690 Equipment overhaul in year 6 $4,750 Equipment overhaul in year 8 $6,060 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 %24
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Chapter 9 Question 7
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Transcribed Image Text:View Policies
Current Attempt in Progress
Michael Jones is evaluating two new business opportunities. Each of the opportunities shown below has a 15-year life. Michael uses
a 12% discount rate.
Option 1
Option 2
Equipment purchase and installation
$71,700
$82,540
Annual cash flow
$28,200
$30,690
Equipment overhaul in year 6
$4,750
Equipment overhaul in year 8
$6,060
Click here to view the factor table.
(a)
Calculate the net present value of the two opportunities. (Round present value factor calculations to 4 decimal places, e.g. 1.2514
and the final answers to 0 decimal places, e.g. 59,991.)
Option 1
Option 2
2$
Net present value
$
%24
Transcribed Image Text:APPENDIX 9.1 Present value of $1 received in n periods.
Periods
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
16%
18%
20%
1
0.9615
0.9524
0.9434 0.9346 0.9259 0.9174
0.9091 0.9009 0.8929 0.8850
0.8772
0.8621 0.8475
0.8333
0.9246
0.9070
0.8900
0.8734
0.8573 0.8417
0.8264 0.8116 0.7972 0.7831
0.7695
0.7432 0.7182
0.6944
3
0.8890
0.8638
0.8396
0.8163
0.7938
0.7722
0.7513 0.7312 0.7118 0.6931
0.6750
0.6407
0.6086
0.5787
4
0.8548
0.8227
0.7921
0.7629 0.7350
0.7084
0.6830 0.6587 0.6355 0.6133
0.5921
0.5523
0.5158 0.4823
0.8219
0.7835
0.7473 0.7130 0.6806 0.6499
0.6209 0.5935 0.5674
0.5428
0.5194
0.4761 0.4371
0.4019
6.
0.7903
0.7462
0.7050
0.6663
0.6302
0.5963
0.5645
0.5346
0.5066
0.4803
0.4556
0.4104
0.3704
0.3349
7
0.7599
0.7107
0.6651
0.6227
0.5835
0.5470
0.5132
0.4817
0.4523
0.4251
0.3996
0.3538
0.3139
0.2791
0.7307
0.6768
0.6274
0.5820
0.5403
0.5019 0.4665
0.4339
0.4039
0.3762
0.3506
0.3050
0.2660
0.2326
0.7026
0.6446
0.5919
0.5439
0.5002
0.4604
0.4241
0.3909
0.3606
0.3329
0.3075
0.2630
0.2255
0.1938
10
0.6756
0.6139
0.5584
0.5083
0.4632
0.4224
0.3855
0.3522
0.3220
0.2946
0.2697
0.2267
0.1911
0.1615
11
0.6496
0.5847
0.5268
0.4751
0.4289
0.3875 0.3505 0.3173 0.2875
0.2607
0.2366
0.1954
0.1619
0.1346
12
0.6246
0.5568
0.4970
0.4440
0.3971
0.3555 0.3186 0.2858 0.2567
0.2307
0.2076 0.1685 0.1372 0.1122
13
0.6006
0.5303
0.4688
0.4150
0.3677
0.3262 0.2897 0.2575 0.2292 0.2042
0.1821
0.1452 0.1163
0.0935
14
0.5775
0.5051
0.4423
0.3878
0.3405
0.2992
0.2633
0.2320
0.2046
0.1807
0.1597 0.1252
0.0985
0.0779
15
0.5553
0.4810
0.4173
0.3624 0.3152
0.2745 0.2394
0.2090
0.1827
0.1599
0.1401
0.1079 0.0835 0.0649
16
0.5339
0.4581
0.3936
0.3387
0.2919
0.2519 0.2176
0.1883
0.1631
0.1415
0.1229 0.0930 0.0708 0.0541
17
0.5134
0.4363
0.3714
0.3166
0.2703
0.2311 0.1978
0.1696
0.1456 0.1252 0.1078 0.0802 0.0600
0.0451
18
0.4936
0.4155
0.3503
0.2959
0.2502
0.2120 0.1799
0.1528
0.1300
0.1108
0.0946
0.0691
0.0508
0.0376
19
0.4746
0.3957
0.3305
0.2765 0.2317
0.1945 0.1635 0.1377
0.1161
0.0981
0.0829 0.0596 0.0431 0.0313
20
0.4564
0.3769
0.3118
0.2584
0.2145
0.1784 0.1486
0.1240
0.1037
0.0868
0.0728
0.0514
0.0365
0.0261
$1
PVn.
(1+ i)"
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