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Required a. Compute the net present value of each opportunity. Which should Mr. Keams adopt based on the net present value approach? b. Compute the payback period for each project. Which should Mr. Kearns adopt based on the payback approach?

Required a. Compute the net present value of each opportunity. Which should Mr. Keams adopt based on the net present value approach? b. Compute the payback period for each project. Which should Mr. Kearns adopt based on the payback approach?

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)
Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)
7th Edition
ISBN:9780357033609
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Chapter14: Planning For Retirement
Section: Chapter Questions
Problem 2FPE
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Daryl Kearns saved $250,000 during the 25 years that he worked for a major corporation. Now he has retired at the age of 50 and has begun to draw a comfortable pension check every month. He wants to ensure the financial security of his retirement by Investing his savings wisely and is currently considering two Investment opportunities. Both Investments require an initial payment of $183,000. The following table presents the estimated cash inflows for the two alternatives: Opportunity #1 Opportunity #2 Year 1 $ 55,630 104,100 Year 2 $ 58,820 109,450 Year 3 $78,930 17,100 Mr. Keams decides to use his past average return on mutual fund Investments as the discount rate: It is 8 percent. (PV of $) and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required Opportunity 1 Opportunity 2 Which opportunity should be chosen? a. Compute the net present value of each opportunity. Which should Mr. Kears adopt based on the net present value approach? b. Compute the payback period for each project. Which should Mr. Kearns adopt based on the payback approach? Complete this question by entering your answers in the tabs below. Year 4 $101,350 16,000 Required A Required B Compute the payback period for each opportunity. Which should Mr. Keams adopt based on the payback approach? Payback Period Required A years years Repoed >
Transcribed Image Text:Daryl Kearns saved $250,000 during the 25 years that he worked for a major corporation. Now he has retired at the age of 50 and has begun to draw a comfortable pension check every month. He wants to ensure the financial security of his retirement by Investing his savings wisely and is currently considering two Investment opportunities. Both Investments require an initial payment of $183,000. The following table presents the estimated cash inflows for the two alternatives: Opportunity #1 Opportunity #2 Year 1 $ 55,630 104,100 Year 2 $ 58,820 109,450 Year 3 $78,930 17,100 Mr. Keams decides to use his past average return on mutual fund Investments as the discount rate: It is 8 percent. (PV of $) and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required Opportunity 1 Opportunity 2 Which opportunity should be chosen? a. Compute the net present value of each opportunity. Which should Mr. Kears adopt based on the net present value approach? b. Compute the payback period for each project. Which should Mr. Kearns adopt based on the payback approach? Complete this question by entering your answers in the tabs below. Year 4 $101,350 16,000 Required A Required B Compute the payback period for each opportunity. Which should Mr. Keams adopt based on the payback approach? Payback Period Required A years years Repoed >
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