Question

Parrino, Fundamentals of Corporate Finance, 4e Sunland Mills management is evaluating two alternative heating systems. Costs and projected energy savings are given in the following table. percent to discount such project cash flows. The firm uses 11.5 Year System 100 System 200 -$1,334, 100 $2,147,200 279,710 869,100 474,200 616,340 650,500 428,200 398,330 912,600 What is the NPV of the systems? (Enter negative amounts using negative sign, e.g. -as.25. Do not round discount factors and in calculations. Round final answers to o decimal places, e.g. 5,275.) NPV of system 100 is NPV of system 200 is Which system should be chosen? Sunland should choose Click if you would like to Show Work for this question: di Type here to search

Answer 1

Year	System 100	System 200
0	-1334100	-2147200
1	279710	869100
2	398330	474200
3	616340	650500
4	912600	428200
NPV	$272,235.58	($239,997.87)

Since NPV of system 100 is positive while that of 200 is negative, Sunland should choose System 200.

WORKINGS

Book1 Excel Sign in AutoSave Insert Draw Page Layout Formulas Data Review View Help Tell me what you want to do File Share Home Calibri Wrap Text General Conditional Fornat as Cell Insert Delete Fornat Formatting Table Styles Paste Filter▼ Select Styles Alignment Number Cells Editing Clipboard A2 Year 0 System 100 System 200 2147200 869100 474200 650500 428200 1334100 279710 398330 616340 912600 -NPV(11.5%,C4:C7)+C3 -NPV(11.5%,D4:D7)+D3 NPV 10 12 13 14 15 16 Sheet1 Sheet2 Sheet3 Sheet4 Sheet5 Ready +100% a R ^包 ENG 11:12 AM