Problem $13-14($Algo$)$ Risk$-$adjusted discount rate $[$LO$13-3]$

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 $13$ percent discount rate. Method two $($explosion$)$ is less expensive to perform but more dangerous and will call for a higher discount rate of $17$ percent. Either method will require an initial capital outlay of $$106,000.$ The inflows from projected business over the next five years are shown next.

Years Method $1$ Method $2$

$1$ $ $32,200$ $ $22,900$

$237,90030,400$

$344,90035,700$

$440,70034,000$

$522,10072,400$

Use Appendix B for an approximate answer but calculate your final answers using the formula and financial calculator methods.

Calculate net present value for Method $1$ and Method $2.$

Note: Do not round intermediate calculations and round your answers to $2$ decimal places.

Which method should be selected using net present value analysis?

multiple choice

Method $1$

Method $2$

Neither of these