Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Bill Zimmerman is evaluating two new business opportunities. Each of the opportunities shown below has a ten-year life. Bill uses a 12% discount rate. Option
Bill Zimmerman is evaluating two new business opportunities. Each of the opportunities shown below has a ten-year life. Bill uses a 12% discount rate.
Option 1 | Option 2 | |||
Equipment purchase and installation | $70,200 | $82,120 | ||
Annual cash flow | $28,600 | $31,070 | ||
Equipment overhaul in year 3 | $4,810 | - | ||
Equipment overhaul in year 5 | - | $6,250 |
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.) Calculate the profitability index of the two opportunities. (Round answers to 2 decimal places, e.g. 15.25.)
Which option should Bill choose?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started