Reference no: EM132484176

Point 1: Western Dynamite Company is evaluating two new methods of blowing up buildings for commercial purposes over the next five years. Method 1 (implosion) is relatively low in risk for this business and will carry a 12 percent discount rate. Method 2 (explosion) is less expensive to perform, but it is more dangerous and will require a higher discount rate of 17 percent. Either method will require an initial capital outlay $80,000. The inflows from projected business over the next five years are given below.

Year         Method 1               Method 2

1            $31,700               $19,800

2            36,800                 30,600

3            46,900                34,500

4            35,200               34,700

5          26,500                  70,400

Question 1: Calculate NPV for Method 1 and Method 2. (Round "PV Factor" to 3 decimal places. Do not round intermediate calculations. Round the final answers to the nearest whole dollar.)

• Net
• present value
• Method 1$
• Method 2$

Question 2: Which method should be selected using net present value analysis?

1. Method 1
2. Method 2
3. Neither of these