Direct Energy has two options for upgrading a natural gas power station to meet new government standards. Option 1: Direct Energy will make the upgrades themselves. This is expected to cost $10,900 at the end of each month for 13 years. At the end of the operation (in 13 years) Direct Energy expects to sell all equipment needed for the upgrade for $122,000. Option 2: Pay experienced contractors. This will cost $45,000 up front and $10,400 monthly for 11 years. Assume all interest is s25% compounded monthly. Round the answers to NPV (Option 1), and NPV (Option 2) to the nearest dollar. Round 1other answers to two decimal places where apple
Direct Energy has two options for upgrading a natural gas power station to meet new government standards. Option 1: Direct Energy will make the upgrades themselves. This is expected to cost $10,900 at the end of each month for 13 years. At the end of the operation (in 13 years) Direct Energy expects to sell all equipment needed for the upgrade for $122,000. Option 2: Pay experienced contractors. This will cost $45,000 up front and $10,400 monthly for 11 years. Assume all interest is s25% compounded monthly. Round the answers to NPV (Option 1), and NPV (Option 2) to the nearest dollar. Round 1other answers to two decimal places where apple
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 16P
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Transcribed Image Text:Question 4
Direct Energy has two options for upgrading a natural gas power station to meet new
government standards.
Option 1: Direct Energy will make the upgrades themselves. This is expected to cost
$10,900 at the end of each month for 13 years. At the end of the operation (in 13
years) Direct Energy expects to sell all equipment needed for the upgrade for
$122,000.
Option 2: Pay experienced contractors. This will cost $45,000 up front and $10,400
monthly for 11 years.
Assume all interest is s25% compounded monthly.
Round the answers to NPV (Option 1), and NPV (Option 2) to the nearest dollar.
Round all other answers to two decimal places where applicable.
1) Find the net present value of option 1:
Sale of equipment
(Residual)
Payments (Cost)
P/Y =
C/Y=
MeeRook Pro
Transcribed Image Text:Sale of equipment
Payments (Cost)
(Residual)
P/Y =
C/Y =
N.
I/Y =
PV =
PMT =
FV =
(If the NPV is negative, enter it as a negative number. If the NPV is zero, enter 0.)
NPV (Option 1) = $
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