Kenneth Clark is evaluating two new business opportunities. Each of the opportunities shown below has a 15-year life. Kenneth uses a 12% discount rate.

		Option 1		Option 2
Equipment purchase and installation		$72,000		$83,270
Annual cash flow		$28,800		$30,860
Equipment overhaul in year 6		$4,620		-
Equipment overhaul in year 8		-		$5,990

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(a)

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.)

	Option 1	Option 2
Net present value	$enter a dollar amount rounded to 0 decimal places	$enter a dollar amount rounded to 0 decimal places

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(b)

Calculate the profitability index of the two opportunities. (Round answers to 2 decimal places, e.g. 15.25.)

	Option 1	Option 2
Profitability Index	enter profitability index rounded to 2 decimal places	enter profitability index rounded to 2 decimal places

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(c)

Which option should Kenneth choose?

Kenneth should choose select an option Option 1Option 2.