# 11.William Brown is evaluating two new business opportunities. Each of the opportunities shown below has a 15-year life. William uses a 12% discount rate.

11.WilliamBrownis evaluating two new business opportunities. Each of the opportunities shown below has a 15-year life.Williamuses a12% discount rate. Option 1 Option 2Equipment purchase and installation \$71,200 \$82,800Annual cash flow \$29,000 \$31,130Equipment overhaul in year 6 -\$4,710Equipment overhaul in year 8 -\$5,730(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.)Option 1 Option2? ?(b) Calculate the profitability index of the two opportunities.(Round answers to 2 decimal places, e.g. 15.25.)Option 1 Option 2? ?(c) Which option shouldWilliamchoose?Williamshould chooseselect an option Option 1 or Option 212.FlintPix currently uses a six-year-old molding machine to manufacture silver picture frames. The company paid \$95,000for the machine, which was state of the art at the time of purchase. Although the machine will likely last another ten years, it will need a \$12,000overhaul in four years. More important, it does not provide enough capacity to meet customer demand. The company currently produces and sells9,000frames per year, generating a total contribution margin of \$92,500.Martson Molders currently sells a molding machine that will allowFlintPix to increase production and sales to12,000frames per year. The machine, which has a ten-year life, sells for \$138,000and would cost \$14,000per year to operate.FlintPixs current machine costs only \$8,000per year to operate. IfFlintPix purchases the new machine, the old machine could be sold at its book value of \$5,000. The new machine is expected to have a salvage value of \$20,200at the end of its ten-year life.FlintPix uses straight-line depreciation.(a)Calculate the new machines net present value assuming a14% discount rate.(b)Use Excel or a similar spreadsheet application to calculate the new machines internal rate of return.(C)Calculate the new machines payback period.(Round answer to 2 decimal places, e.g. 1.25.)payback period ___?____years