Dixie Dynamite Company is evaluating two methods of blowing up old buildings for commercial purposes over the next five years. Method one (implosion) is relatively low in risk for this business and will carry a 14 percent discount rate. Method two (explosion) is less expensive to perform but more dangerous and will call for a higher discount rate of 16 percent. Either method will require an initial capital outlay of $92,000. The inflows from projected business over the next five years are shown next. Years Method 1 Method 2 1 $ 30,400 $ 19,300 2 42,400 31,700 3 45,600 38,600 4 47,400 30,600 5 26,000 74,300 Use Appendix B for an approximate answer but calculate your final answers using the formula and financial calculator methods. a. Calculate net present value for Method 1 and Method 2. (

Dixie Dynamite Company is evaluating two methods of blowing up old buildings for commercial purposes over the next five years Method one (implosion) is relatively low in risk for this business and will carry a 14 percent discount rate. Method two (explosion) is less expensive to perform but more dangerous and will call for a higher discount rate of 16 percent. Either method will require an initial capital outlay of $92,000. The inflows from projected business over the next five years are shown next. Years Method 1 Method 2 $30, 400 $19,300 42,400 31,700 45,600 38, 600 47, 400 30, 600 26,000 74,300 Use Appendix B for an approximate answer but calculate your final answers using the formula and financial calculator methods. a. Calculate net present value for Method 1 and Method 2. (Do not round intermediate calculations and round your answers to 2 decimal places.) Net Present Value Method 1 Method 2 b. Which method should be selected using net present value analysis? O Method 1 O Method 2 O Neither of these Appendix B (concluded) Present value of $1 Period 50% 0.667 0.444 0.296 13% 0.885 0.783 0.693 0.613 0.543 0.480 0.425 0.376 0.333 0.295 0.261 0.231 0.204 0.181 0.160 0.141 0.125 0.111 0.098 14% 15% 0.877 0.870 0.769 0.756 0.675 0.658 0.592 0.572 0.519 0.497 0.456 0.432 0.400 0.376 0.351 0.327 0.308 0.284 0.270 0.247 0.237 0.215 0.208 0.187 0.182 0.163 0.160 0.141 0.140 0.140 0.123 0.123 0.107 0.108 0.093 0.095 0.081 0.083 0.070 0.073 0.061 0.038 0.030 0.0200.015 0.005 0.004 0.001 0.001 16% 0.862 0.743 0.641 0.552 0.476 0.410 0.354 0.305 0.263 0.227 0.195 0.168 0.145 0.125 0.108 0.093 0.080 0.069 0.060 0.051 0.024 0.012 0.003 0.001 17% 0.855 0.731 0.624 0.534 0.456 0.390 0.333 0.285 0.243 0.208 0.178 0.152 0.130 0.111 0.095 0.081 0.069 0.059 0.051 0.043 0.020 0.009 0.002 0 18% 0.847 0.718 0.609 0.515 0.437 0.370 0.314 0.266 0.225 0.191 0.162 0.137 0.116 0.099 0.084 0.071 0.060 0.051 0.043 0.037 0.016 0.007 0.001 o Porcent 19% 0.840 0.706 0.593 0.499 0.419 0.352 0.296 0.249 0.209 0.176 0.148 0.124 0.104 0.088 0.074 0.062 0.052 0.044 0.037 0.031 0.013 0.005 0.001 0 20% 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 0.162 0.135 0.112 0.093 0.078 0.065 0.054 0.045 0.038 0.031 0.026 0.010 0.004 0.0010 O 25% 30% 35% 0.800 0.769 0.741 0.640 0.5920.549 0.512 0.455 0.406 0.410 0.350 0.301 0.328 0.269 0.223 0.262 0.207 0.165 0.210 0.159 0.122 0.168 0.123 0.091 0.134 0.094 0.067 0.107 0.073 0.050 0.086 0.056 0.037 0.069 0.043 0.027 0.055 0.033 0.020 0.044 0.025 0.015 0.035 0.020 0.011 0.028 0.015 0.008 0.023 0.012 0.006 0.018 0.009 0.005 0.014 0.007 0.003 0.012 0.005 0.002 0.004 0.001 0.001 0.0010 40% 0.714 0.510 0.364 0.260 0.186 0.133 0.095 0.068 0.048 0.035 0.025 0.018 0.013 0.009 0.006 0.005 0.003 0.002 0.002 0.001 0.132 0.088 0.059 0.039 0.026 0.017 0.012 0.008 0.005 0.003 0.002 0.002 0.001 0.001 0 0.087 0.047 0.026 0.008 0.002 OOO OOO