Daryl Kearns saved $260,000 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 $189,500. The following presents the estimated cash inflows for the two alternatives:

Opportunity 1: Year 1: $55,645 Year 2: $58,930 Year 3: $78,800 Year 4: $101,360

Opportunity 2: Year 1:$103,200 Year 2: $109,000 Year 3: $16,600 Year 4: $15,900

Mr. Kearns decides to use his past average return on mutual fund inbestment as the discount rate: it is 9 percent (Use appropriate factor(s) from the tables provided).

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?

a. Net Present Value

Opportunity 1:

Opportunity 2:

Which opportunity should be chosen?

b. Payback Period

Opportunity 1:

Opportunity 2:

Which opportunity should be chosen?