Charles Wilson is evaluating two new business opportunities. Each of the opportunities shown below has...
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Accounting
Charles Wilson is evaluating two new business opportunities. Each of the opportunities shown below has a 15-year life. Charles uses a 12% discount rate.
Option 1 Option 2
Equipment purchase and installation $70,700 $81,280
Annual cash flow $27,000 $29,330
Equipment overhaul in year 6 $4,820 --
Equipment overhaul in year 8 -- $6,200
(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.)
Net Present Value Option1: ______ Option 2: _______
(B) Calculate the profitability index of the two opportunities.(Round answers to 2 decimal places, e.g. 15.25.)
Profitability Index Option 1: _________ Option 2: _______
(C) Which option should Charles choose?
option 1 or option 2
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