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Robert Williams is evaluating two new business opportunities
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 |
Click here to view the factor table.
(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)
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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 |
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(c)
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Your answer is correct.
Which option should Robert choose?
| Robert should choose select an option Option 1Option 2. |
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