ACC-650 TOPIC 6 Assignment

Question 11 of 12

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Paul White is evaluating two new business opportunities. Each of the opportunities shown below has a 15-year life. Paul uses a 12% discount rate.

		Option 1		Option 2
Equipment purchase and installation		$70,400		$81,330
Annual cash flow		$28,700		$30,840
Equipment overhaul in year 6		$4,630		-
Equipment overhaul in year 8		-		$5,970

Click here to view the factor table.

(a)

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	$	$

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(b)

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(c)

Which option should Paul choose?

Paul should choose

Option 1Option 2

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