Daryl Kearns saved $220,000 during the 25 years that he worked for a major corporation. Now he has retired at the age of 50 and has begun to draw a comfortable pension check every month. He wants to ensure the financial security of his retirement by investing his savings wisely and is currently considering two investment opportunities. Both investments require an initial payment of $191,000. The following table presents the estimated cash inflows for the two alternatives:

Year 1 Year 2 Year 3 Year 4

Opportunity #1 $ 55,685 $ 58,860 $ 78,890 $ 101,350

Opportunity #2 103,800 109,550 18,000 15,500

Mr. Kearns decides to use his past average return on mutual fund investments as the discount rate; it is 10 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)

Required

Compute the net present value of each opportunity. Which should Mr. Kearns adopt based on the net present value approach?

Compute the payback period for each opportunity. Which should Mr. Kearns adopt based on the payback approach?

Help Save & Exit Submit Check my work 19 Required ARequired B Compute the net present value of each opportunity. Which should Mr. Kearns adopt based on the net present value approach? (Round your intermediate calculations and final answer to two decimal places.) Skipped Net Present Value Opportunity1 Opportunity 2 Which opportunity should be chosen? Required A Required B> Prev 19 of 21 : Next> Help Save & Exit Submit Check my work 1Cpbet Complete this question by entering your answers in the tabs below Required A Required B Skipped Compute the payback period for each opportunity. Which should Mr. Kearns adopt based on the payback approach? Payback Period Opportunity1 Opportunity 2 Which opportunity should be chosen? ears years PRESENT VALUE OF $1 1 0.961538 0.952381 0.94339 2 0.924556 0.907029 0.88999 3 0.888996 0.863838 0.839619 0.816298 0.793832 0.772183 0.751315 0.711780 0.674972 0.640658 0.578704 4 0.854804 0.822702 0.792094 0.762895 0.735030 0.708425 0.683013 0.635518 0.592080 0.552291 0.482253 5 0.821927 0.783526 0.747258 0.712986 0.680583 0.649931 0.620921 0.567427 0.519369 0.476113 0.401878 6 0.790315 0.746215 0.704961 0.666342 0.630170 0.596267 0.564474 0.506631 0.455587 0.410442 0.334898 7 0.759918 0.710681 0.665057 0.622750 0.583490 0.547034 0.513158 0.452349 0.399637 0.353830 0.279082 8 0.730690 0.676839 0.627412 0.582009 0.540269 0.501866 0.466507 0.403883 0.350559 0.305025 0.232568 9 0.702587 0.644609 0.591898 0.543934 0.500249 0.460428 0.424098 0.360610 0.307508 0.262953 0.193807 10 0.675564 0.613913 0.558395 0.508349 0.463193 0.422411 0.385543 0.321973 0.269744 0.226684 0.161506 0.934579 0.925926 0.917431 0.909091 0.892857 0.877193 0.862069 0.833333 0.873439 0.857339 0.841680 0.826446 0.797194 0.769468 0743163 0.694444 0.649581 0.584679 0.526788 0.475093 0.428883 0.387533 0.350494 0.2874760.236617 0.195417 0.134588 12 0.624597 0.556837 0.496969 0.444012 0.397114 0.355535 0.318631 0.256675 0.207559 0168463 0.112157 0.326179 0.289664 0.229174 0.182069 0145227 0.093464 4 0.577475 0.505068 0.442301 0.387817 0.340461 0.299246 0.263331 0.204620 0.159710 0.125195 0.077887 5 0.555265 0.481017 0.417265 0.362446 0.315242 0.274538 0.239392 0.182696 0140096 0.107927 0.064905 16 0.533908 0.458112 0.393646 0.338735 0.291890 0.251870 0.217629 0.163122 0.122892 0.093041 0.054088 17 0.513373 0.436297 0.371364 0.316574 0.270269 0.231073 0.197845 0.145644 0.107800 0.080207 0.045073 18 0.493628 0.415521 0.350344 0.295864 0.250249 0.211994 0.179859 0.130040 0.094561 0.0691440.037561 9 0.474642 0.395734 0.330513 0.276508 0.231712 0.194490 0.163508 0.116107 0.082948 0.059607 0.031301 0 0.456387 0.376889 0.311805 0.258419 0.214548 0.178431 0.148644 0.103667 0.072762 0.051385 0.026084 13 0.600574 0.530321 0.468839 0.414964 0.3676 TABLE2 PRESENT VALUE OF AN ANNUITY OF $1 4% 5% 6% 7% 8% 9% 10% 12% 14% 16% 20% 1 0.961538 0.952381 0.943396 0.934579 0.925926 0.917431 0.909091 0.892857 0.877193 0.862069 0.833333 2 1.886095 1.859410 1.833393 1.808018 1.783265 1759111 1.735537 1.690051 1.646661 1.605232 1527778 3 2.7750912.723248 2.673012 2.624316 2.577097 2.531295 2.486852 2.401831 2.321632 2.245890 2.106481 4 3.629895 3.545951 3.465106 3.387211 3.312127 3.239720 3.169865 3.037349 2.913712 2.798181 2.588735 5 4.451822 4.329477 4.2123644100197 3.992710 3.889651 3.7907873.604776 3.433081 3.274294 2.990612 6 5.242137 5.075692 4.917324 4.766540 4.622880 4.485919 4.355261 4.111407 3.888668 3.6847363.325510 7 6.002055 5.786373 5.582381 5.389289 5.206370 5.032953 4.868419 4.563757 4.288305 4.038565 3.604592 8 6.732745 6.463213 6.209794 5.971299 5.746639 5.534819 5.334926 4.967640 4.6388644.343591 3.837160 9 7435332 7107822 6.801692 6.515232 6.246888 5.995247 5.759024 5.328250 4.946372 4.606544 4.030967 10 8.110896 7.721735 7.360087 7023582 6.710081 6.417658 6.144567 5.650223 5.216116 4.833227 4.192472 11 8.760477 8.306414 7.886875 7498674 7138964 6.805191 6.495061 5.937699 5.452733 5.028644 4.327060 2 9.3850748.863252 8.383844 7942686 7.536078 7160725 6.813692 6.194374 5.660292 5.197107 4.439217 13 9.985648 9.393573 8.852683 8.357651 7.903776 7486904 7103356 6.423548 5.842362 5.342334 4.532681 14 10.5631239.898641 9.294984 8.745468 8.244237 7.786150 7.366687 6.628168 6.002072 5.467529 4.610567 5 11.118387 10.379658 9.712249 9.107914 8.559479 8.060688 76060806.810864 6.142168 5.575456 4.675473 16 11.652296 10.837770 10.105895 9.446649 8.851369 8.312558 7823709 6.973986 6.265060 5.668497 4.729561 17 12.165669 11.274066 10.477260 9.763223 9.121638 8.543631 8.021553 7119630 6.372859 5.748704 4.774634 18 12.659297 11.689587 10.827603 10.059087 9.371887 8.755625 8.201412 7.249670 6.467420 5.817848 4.812195 9 13.133939 12.085321 11.158116 10.335595 9.603599 8.905115 8.364920 7.3657776.550369 5.877455 4.843496 20 13.59032612.462210 11.469921 10.594014 9.818147 9.128546 8.513564 7.469444 6.623131 5.928841 4.869580

Question

Daryl Kearns saved $220,000 during the 25 years that he worked for a major corporation. Now he has retired at the age of 50 and has begun to draw a comfortable pension check every month. He wants to ensure the financial security of his retirement by investing his savings wisely and is currently considering two investment opportunities. Both investments require an initial payment of $191,000. The following table presents the estimated cash inflows for the two alternatives:

	Year 1		Year 2		Year 3		Year 4
Opportunity #1	$	55,685	$	58,860	$	78,890	$	101,350
Opportunity #2		103,800		109,550		18,000		15,500

Mr. Kearns decides to use his past average return on mutual fund investments as the discount rate; it is 10 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)

Required

Compute the net present value of each opportunity. Which should Mr. Kearns adopt based on the net present value approach?
Compute the payback period for each opportunity. Which should Mr. Kearns adopt based on the payback approach?

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Help Save & Exit Submit Check my work 19 Required ARequired B Compute the net present value of each opportunity. Which should Mr. Kearns adopt based on the net present value approach? (Round your intermediate calculations and final answer to two decimal places.) Skipped Net Present Value Opportunity1 Opportunity 2 Which opportunity should be chosen? Required A Required B> Prev 19 of 21 : Next> Help Save & Exit Submit Check my work 1Cpbet Complete this question by entering your answers in the tabs below Required A Required B Skipped Compute the payback period for each opportunity. Which should Mr. Kearns adopt based on the payback approach? Payback Period Opportunity1 Opportunity 2 Which opportunity should be chosen? ears years PRESENT VALUE OF $1 1 0.961538 0.952381 0.94339 2 0.924556 0.907029 0.88999 3 0.888996 0.863838 0.839619 0.816298 0.793832 0.772183 0.751315 0.711780 0.674972 0.640658 0.578704 4 0.854804 0.822702 0.792094 0.762895 0.735030 0.708425 0.683013 0.635518 0.592080 0.552291 0.482253 5 0.821927 0.783526 0.747258 0.712986 0.680583 0.649931 0.620921 0.567427 0.519369 0.476113 0.401878 6 0.790315 0.746215 0.704961 0.666342 0.630170 0.596267 0.564474 0.506631 0.455587 0.410442 0.334898 7 0.759918 0.710681 0.665057 0.622750 0.583490 0.547034 0.513158 0.452349 0.399637 0.353830 0.279082 8 0.730690 0.676839 0.627412 0.582009 0.540269 0.501866 0.466507 0.403883 0.350559 0.305025 0.232568 9 0.702587 0.644609 0.591898 0.543934 0.500249 0.460428 0.424098 0.360610 0.307508 0.262953 0.193807 10 0.675564 0.613913 0.558395 0.508349 0.463193 0.422411 0.385543 0.321973 0.269744 0.226684 0.161506 0.934579 0.925926 0.917431 0.909091 0.892857 0.877193 0.862069 0.833333 0.873439 0.857339 0.841680 0.826446 0.797194 0.769468 0743163 0.694444 0.649581 0.584679 0.526788 0.475093 0.428883 0.387533 0.350494 0.2874760.236617 0.195417 0.134588 12 0.624597 0.556837 0.496969 0.444012 0.397114 0.355535 0.318631 0.256675 0.207559 0168463 0.112157 0.326179 0.289664 0.229174 0.182069 0145227 0.093464 4 0.577475 0.505068 0.442301 0.387817 0.340461 0.299246 0.263331 0.204620 0.159710 0.125195 0.077887 5 0.555265 0.481017 0.417265 0.362446 0.315242 0.274538 0.239392 0.182696 0140096 0.107927 0.064905 16 0.533908 0.458112 0.393646 0.338735 0.291890 0.251870 0.217629 0.163122 0.122892 0.093041 0.054088 17 0.513373 0.436297 0.371364 0.316574 0.270269 0.231073 0.197845 0.145644 0.107800 0.080207 0.045073 18 0.493628 0.415521 0.350344 0.295864 0.250249 0.211994 0.179859 0.130040 0.094561 0.0691440.037561 9 0.474642 0.395734 0.330513 0.276508 0.231712 0.194490 0.163508 0.116107 0.082948 0.059607 0.031301 0 0.456387 0.376889 0.311805 0.258419 0.214548 0.178431 0.148644 0.103667 0.072762 0.051385 0.026084 13 0.600574 0.530321 0.468839 0.414964 0.3676 TABLE2 PRESENT VALUE OF AN ANNUITY OF $1 4% 5% 6% 7% 8% 9% 10% 12% 14% 16% 20% 1 0.961538 0.952381 0.943396 0.934579 0.925926 0.917431 0.909091 0.892857 0.877193 0.862069 0.833333 2 1.886095 1.859410 1.833393 1.808018 1.783265 1759111 1.735537 1.690051 1.646661 1.605232 1527778 3 2.7750912.723248 2.673012 2.624316 2.577097 2.531295 2.486852 2.401831 2.321632 2.245890 2.106481 4 3.629895 3.545951 3.465106 3.387211 3.312127 3.239720 3.169865 3.037349 2.913712 2.798181 2.588735 5 4.451822 4.329477 4.2123644100197 3.992710 3.889651 3.7907873.604776 3.433081 3.274294 2.990612 6 5.242137 5.075692 4.917324 4.766540 4.622880 4.485919 4.355261 4.111407 3.888668 3.6847363.325510 7 6.002055 5.786373 5.582381 5.389289 5.206370 5.032953 4.868419 4.563757 4.288305 4.038565 3.604592 8 6.732745 6.463213 6.209794 5.971299 5.746639 5.534819 5.334926 4.967640 4.6388644.343591 3.837160 9 7435332 7107822 6.801692 6.515232 6.246888 5.995247 5.759024 5.328250 4.946372 4.606544 4.030967 10 8.110896 7.721735 7.360087 7023582 6.710081 6.417658 6.144567 5.650223 5.216116 4.833227 4.192472 11 8.760477 8.306414 7.886875 7498674 7138964 6.805191 6.495061 5.937699 5.452733 5.028644 4.327060 2 9.3850748.863252 8.383844 7942686 7.536078 7160725 6.813692 6.194374 5.660292 5.197107 4.439217 13 9.985648 9.393573 8.852683 8.357651 7.903776 7486904 7103356 6.423548 5.842362 5.342334 4.532681 14 10.5631239.898641 9.294984 8.745468 8.244237 7.786150 7.366687 6.628168 6.002072 5.467529 4.610567 5 11.118387 10.379658 9.712249 9.107914 8.559479 8.060688 76060806.810864 6.142168 5.575456 4.675473 16 11.652296 10.837770 10.105895 9.446649 8.851369 8.312558 7823709 6.973986 6.265060 5.668497 4.729561 17 12.165669 11.274066 10.477260 9.763223 9.121638 8.543631 8.021553 7119630 6.372859 5.748704 4.774634 18 12.659297 11.689587 10.827603 10.059087 9.371887 8.755625 8.201412 7.249670 6.467420 5.817848 4.812195 9 13.133939 12.085321 11.158116 10.335595 9.603599 8.905115 8.364920 7.3657776.550369 5.877455 4.843496 20 13.59032612.462210 11.469921 10.594014 9.818147 9.128546 8.513564 7.469444 6.623131 5.928841 4.869580