Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Exam 3 - Chapters 9-13 instructions I help Question 62 (of 66) Save & Ext Submit value: 2.00 points You did not receive full credit
Exam 3 - Chapters 9-13 instructions I help Question 62 (of 66) Save & Ext Submit value: 2.00 points You did not receive full credit for this question in a previous attempt Problem 13-14 Risk-adjusted discount rate [LO13-3] Dixie Dynamite Company is evaluating two methods of blowing up old buildings for commercial purposes over the next five years. Method one (implosion) is relatively low in risk for this business and will carry a 12 percent discount rate. Method two (explosion) is less expensive to perform but more dangerous and will call for a higher discount rate of 16 percent. Either method will require an initial capital outlay of $107,000. The inflows from projected business over the next five years are shown next. Years Method 1 Method 2 S34,100 S19,700 31,500 40.500 38,800 77.000 37.900 39,900 24,400 Use Appendix B for an approximate answer but calculate your final answers using the formula and financial calculator methods a. Calculate net present value for Method 1 and Method 2.(Do not round intermediate calculations and round your answers to 2 decimal places.) Net Present Value 31,486.11 22,215.48 Method 1 Method 2 b. Which method should be selected using net present value analysis? Method 1 O Method 2 O Neither of these
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