Daryl Kearns saved $300,000 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 $191,000. The following table presents the estimated cash inflows for the two alternatives: Opportunity #1 Opportunity #2 Year 1 $ 55,655 104,400 Year 2 $ 58,910 109, 650 Year 3 $78,900 18,300 Mr. Kearns decides to use his past average return on mutual fund investments as the discount rate; it is 10 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required Required A Required B a. Compute the net present value of each opportunity. Which should Mr. Kearns adopt based on the net present value approach? b. Compute the payback period for each opportunity. Which should Mr. Kearns adopt based on the payback approach? Year 4. $101,310 14,300 Complete this question by entering your answers in the tabs below. Opportunity 1 Opportunity 2 Which opportunity should be chosen? Compute the net present value of each opportunity. Which should Mr. Kearns adopt based on the net present value approach? (Round your intermediate calculations and final answer to two decimal places.) Net Present Value Required A Required B

7th Edition

ISBN:9780357033609

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter4: Managing Your Cash And Savings

Section: Chapter Questions

Problem 8FPE: Determining the right amount of short-term, liquid investments. Ella and Aaron Martin together earn...