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 10 percent discount rate. Method two (explosion) is less expensive to perform but more dangerous and will call for a higher discount rate of 14 percent. Either method will require an initial capital outlay of $97,000. The inflows from projected business over the next five years are given next.

Years	Method 1			Method 2
1	$	33,100		$	20,300
2		39,800			25,600
3		42,100			40,000
4		37,000			30,400
5		19,200			71,900

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?

	Method 1
	Method 2
	Neither of these

Appendix B Present value of $1, PVF PV=FVIgenn Percent 0.971 0.901 0.961 0.942 0.924 2 0.890 0.971 0.731 0.888 0.763 0.735 0.708 0.951 6 0.837 0.596 0.50 0.583 0.923 0.853 0.582 0.502 0.592 0.36 0.429 0.397 0.585 0.388 0.287 0.257 0.475 0.701 0.681 0.661 0.557 0.497 0.232 0.299 0.275 0.252 0.263 0.728 0.188 0.270 0.250 0.232 0.215 0.146 0.700 0.587 0.570 0.130 0.828 0.820 0.277 0.258 0.475 0.456 0.375 0.308 0.208 0.673 0.478 0.233 0.174 0.074 0.059 0.742 0.075 0.057 0.142 0.087 0.307 Appendix B (concluded) Present value of $1 Percent 35% 50% 0.870 0.800 0.743 0.592 0.675 0.658 0.624 0.609 0.406 0.482 0.350 0.269 0.207 0.260 0.223 6 0.305 0.263 0.266 0.225 0.243 0.209 0.247 0.195 0.168 0.162 0.137 0.025 0.237 0.208 0.231 0.124 0.025 0.020 0.003 0.002 0.002 0.088 0.084 0.008 0.006 0.107 0.080 0.081 0.070 0.061 0.095 0.059 0.051 0.043 0.031 0.026 0.087 0.047 0.073 0.001 0.001 0.005 0.001 0.001 0 0 0 0 0 0 0