Dixie Dynamite Company is evaluating two methods of blowing up old buildings for commercial purposes over...

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Dixie Dynamite Company is evaluating two methods of blowing upold buildings for commercial purposes over the next five years.Method one (implosion) is relatively low in risk for this businessand will carry a 12 percent discount rate. Method two (explosion)is less expensive to perform but more dangerous and will call for ahigher discount rate of 16 percent. Either method will require aninitial capital outlay of $107,000. The inflows from projectedbusiness over the next five years are shown next.

Years Method 1 Method 2
1 $ 34,100 $ 19,700
2 37,900 31,500
3 39,900 40,500
4 39,700 38,800
5 24,400 77,000

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

a. Calculate net present value for Method 1 andMethod 2.(Do not round intermediate calculations and roundyour answers to 2 decimal places.)



b. Which method should be selected using netpresent value analysis?

Method 1
Method 2
Neither of these

Answer & Explanation Solved by verified expert

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Method 1 Net present value is solved using a financial calculator The steps to solve on the financial calculator Press the CF button CF0 107000 It is entered with a negative sign since it is a cash outflow Cash flow for all the years should See Answer

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Dixie Dynamite Company is evaluating two methods of blowing upold buildings for commercial purposes over the next five years.Method one (implosion) is relatively low in risk for this businessand will carry a 12 percent discount rate. Method two (explosion)is less expensive to perform but more dangerous and will call for ahigher discount rate of 16 percent. Either method will require aninitial capital outlay of $107,000. The inflows from projectedbusiness over the next five years are shown next. YearsMethod 1Method 21$34,100$19,700237,90031,500339,90040,500439,70038,800524,40077,000 Use Appendix B for an approximate answer but calculate your finalanswers using the formula and financial calculator methods.a. Calculate net present value for Method 1 andMethod 2.(Do not round intermediate calculations and roundyour answers to 2 decimal places.) b. Which method should be selected using netpresent value analysis? Method 1Method 2Neither of these

Years	Method 1		Method 2
1	$	34,100	$	19,700
2		37,900		31,500
3		39,900		40,500
4		39,700		38,800
5		24,400		77,000