Ivanhoe Mills management is evaluating two alternative heating systems. Costs and projected energy savings are given...

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Ivanhoe Mills management is evaluating two alternative heatingsystems. Costs and projected energy savings are given in thefollowing table. The firm uses 11.5 percent to discount suchproject cash flows. Year System 100 System 200 0 –$1,567,200–$2,052,600 1 210,710 576,300 2 541,030 691,700 3 646,840 520,000 4925,700 326,900 What is the NPV of the systems? (Enter negativeamounts using negative sign, e.g. -45.25. Do not round discountfactors and intermediate calculations. Round final answers to 0decimal places, e.g. 5,275.) NPV of system 100 is $ NPV of system200 is $ Which system should be chosen? Ivanhoe should choose

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4.0 Ratings (433 Votes)

Ans NPV of System 100 : $ 122512.58

NPV of System 200: - $ 392733.62

System 100 should be chosen since it has higher NPV.

System 100
Year	Project Cash Flows (i)	DF@ 11.5%	DF@ 11.5% (ii)	PV of Project ( (i) * (ii) )
0	-1567200	1	1	(15,67,200.00)
1	210710	1/((1+11.5%)^1)	0.897	1,88,977.58
2	541030	1/((1+11.5%)^2)	0.804	4,35,182.69
3	646840	1/((1+11.5%)^3)	0.721	4,66,629.58
4	925700	1/((1+11.5%)^4)	0.647	5,98,922.73
		NPV		1,22,512.58

System 200
Year	Project Cash Flows (i)	DF@ 11.5%	DF@ 11.5% (ii)	PV of Project ( (i) * (ii) )
0	-2052600	1	1	(20,52,600.00)
1	576300	1/((1+11.5%)^1)	0.897	5,16,860.99
2	691700	1/((1+11.5%)^2)	0.804	5,56,375.56
3	520000	1/((1+11.5%)^3)	0.721	3,75,127.36
4	326900	1/((1+11.5%)^4)	0.647	2,11,502.47
		NPV		(3,92,733.62)

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Ivanhoe Mills management is evaluating two alternative heatingsystems. Costs and projected energy savings are given in thefollowing table. The firm uses 11.5 percent to discount suchproject cash flows. Year System 100 System 200 0 –$1,567,200–$2,052,600 1 210,710 576,300 2 541,030 691,700 3 646,840 520,000 4925,700 326,900 What is the NPV of the systems? (Enter negativeamounts using negative sign, e.g. -45.25. Do not round discountfactors and intermediate calculations. Round final answers to 0decimal places, e.g. 5,275.) NPV of system 100 is $ NPV of system200 is $ Which system should be chosen? Ivanhoe should choose