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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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