Robert Williams is evaluating two new business opportunities. Each of the opportunities shown below has a 15-year
Question:
Robert Williams is evaluating two new business opportunities. Each of the opportunities shown below has a 15-year life. Robert uses a 12% discount rate.
Option 1 | Option 2 | |||
---|---|---|---|---|
Equipment purchase and installation | $71,800 | $82,390 | ||
Annual cash flow | $28,600 | $30,870 | ||
Equipment overhaul in year 6 | $4,690 | - | ||
Equipment overhaul in year 8 | - | $5,970 |
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(a)
Correct answer icon
Your answer is correct.
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 | $enter a dollar amount rounded to 0 decimal places | $enter a dollar amount rounded to 0 decimal places |
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(b)
Incorrect answer icon
Your answer is incorrect.
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 |
Which option should Robert choose?
Robert should choose select an option Option 1Option 2. |
Statistics for Business & Economics
ISBN: 978-1285846323
12th edition
Authors: David Anderson, Dennis Sweeney, Thomas Williams, Jeffrey Camm, James Cochran