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Calculate the net present value of the two opportunities

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Reference no: EM133080425

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

 

Option 1

Option 2

Equipment purchase and installation

$71,400

$82,760

Annual cash flow

$27,700

$29,760

Equipment overhaul in year 6

$4,550

-

Equipment overhaul in year 8

-

$5,620

Required -

(a) Calculate the net present value of the two opportunities.

(b) Calculate the profitability index of the two opportunities.

(c) Which option should Daniel choose?

Reference no: EM133080425

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