Daryl Kearns saved $240,000 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 $187,500. The following table presents the estimated cash inflows for the two alternatives: Year 1 Year 3 | 58,840 | | $ | 78,880 | | $ | 101,290 18,300 Year 2 Year 4 Opportunity #1 | $ | 55,695 | nity #2 | | 103,100 109,550 15,700 Mr. Kearns decides to use his past average return on mutual fund investments as the discount rate; it is 8 percent. Required a) Compute the net present value of each opportunity. Which should Mr. Kearns adopt based on the net present value approach? b) Compute the payback period for each opportunity. Which should Mr. Kearns adopt based on the payback approach? Expert Answer o Recommend this answer 455 answers a) As per NPV method opportunity 1 is selected.because it consist higher NPV. b) as per payback period opportunity 2 is selcted because it hav lower payback period. Depertunity Opparturity 2 ciscount lactor @8% | PV discourt lactor @8% PV of cash inflow 58.840 00 8.88000 03,100 109,550 00 18,300.00 0,44353 4,448.1 PV of cash inf of CAsh outrlow Pary back period2yr187500-11 pajback perled 77yre