What is the equivalent net present worth of option

Assignment Help Financial Management

Reference no: EM131993442

According to the present-worth criterion, which option would you recommend at i = 12%?

Dynamic Corporation requires a chemical finishing process for a product under contract for a period of six years. Three options are available. Neither option 1 nor option 2 can be repeated after its process life. However, option 3 will always be available from Z&Z Chemical Corporation at the same cost during the period that the contract is operative.

Option 1: Process device A, which costs $100,000 has annual operating and labor costs of $60,000 and a useful service life of four years with an estimated salvage value of $10,000.

Option 2: Process device B, which costs $150,000, has annual operating and labor costs of $50,000 and a useful service life of six years with an estimated salvage value of $30,000.

Option 3: Subcontract out the process at a cost of $100,000

Answer the following question.

1. What is the equivalent Net Present Worth of Option 1?

a. $ -383,292

b. $ 383,292

c. $ 411,134

d. $ -411,134

2. What is the equivalent Net Present Worth of Option 2?

a. $ -310,899

b. $ -325,111

c. $ -340,371

d. $ -383,292

3. Which Option appears to be the best alternative?

a. Option 1

b. Option 2

c. Option 3

Reference no: EM131993442

Questions Cloud

Will she over hedged or under hedged : How many option contracts does she need? will she over hedged or under hedged?

Describe perfect lover : Describe your "perfect" lover. Describe yourself as the "perfect" lover. Again, think more than just the physical aspect of a lover.

What will the insurance company pay for the accident : Marika Katz bought a new Blazer and has insurance coverage of 25/50/25 with $200 deductible for collision. Driving up to her summer home one evening.

Value of the swap in dollars to the party paying sterling : A currency swap has a remaining life of 27 months. What is the value of the swap in dollars to the party paying sterling?

What is the equivalent net present worth of option : What is the equivalent Net Present Worth of Option 1? What is the equivalent Net Present Worth of Option 2?

What are the pros and cons of the international sales : What are the pros and cons of the international sales? What additional risks will the company face? What happens to the company's profits if the dollar strength

Creating a income statement on a personal fortnightly basis : A couple, Timmy and Jenny have come to see you regarding their financial situation. Timmy and Jenny’s personal income statement on a fortnightly basis.

What was the company enterprise value : After the January 2012 transactions were completed, what was the company's equity value? What percentage of the equity did the two founders each own?

What does the current ems system look like today : Has this function been implemented in the past decade, and what were the outcomes?What does the current EMS system look like today?

User Account

All Pages