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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.

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.

FINANCIAL ACCOUNTING
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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Direct Energy has two options for upgrading a hydro-electric power station to meet new government standards. Option 1: Direct Energy will make the upgrades themselves. This is expected to cost $11,600 at the end of each month for 15 years. At the end of the operation (in 15 years) Direct Energy expects to sell all equipment needed for the upgrade for $102,000. Option 2: Pay experienced contractors. This will cost $25,000 up front and $11,700 monthly (at the end of every month) for 13 years. Assume all interest is 3.19% 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 = NPV (Option 1) = $ P/Y C/Y N I/Y PV Payments (Cost) 2) Find the net present value of option 2: Payments (Cost) PMT $ FV $ (If the NPV is negative, enter it as a negative number. If the NPV is zero, enter 0.) $ $ % $ $ Sale of equipment (Residual) $ % $ $ % (rounded to the nearest whole number)
Transcribed Image Text:Direct Energy has two options for upgrading a hydro-electric power station to meet new government standards. Option 1: Direct Energy will make the upgrades themselves. This is expected to cost $11,600 at the end of each month for 15 years. At the end of the operation (in 15 years) Direct Energy expects to sell all equipment needed for the upgrade for $102,000. Option 2: Pay experienced contractors. This will cost $25,000 up front and $11,700 monthly (at the end of every month) for 13 years. Assume all interest is 3.19% 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 = NPV (Option 1) = $ P/Y C/Y N I/Y PV Payments (Cost) 2) Find the net present value of option 2: Payments (Cost) PMT $ FV $ (If the NPV is negative, enter it as a negative number. If the NPV is zero, enter 0.) $ $ % $ $ Sale of equipment (Residual) $ % $ $ % (rounded to the nearest whole number)
(If the NPV is negative, enter it as a negative number. If the NPV is zero, enter 0.) NPV (Option 2) = $ (round to the nearest whole number) 3) Which option should Direct Energy choose? Option 1 Option 2 Either option could be chosen
Transcribed Image Text:(If the NPV is negative, enter it as a negative number. If the NPV is zero, enter 0.) NPV (Option 2) = $ (round to the nearest whole number) 3) Which option should Direct Energy choose? Option 1 Option 2 Either option could be chosen
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