Dawson_LO16-S18.xlsx - Option 1 Net Present Value Discount Rate = Cost of cars = Annual Savings = Life Span = 7 200,000.00 20,000.00 4 years \$ \$ NPV =

# Dawson_LO16-S18.xlsx - Option 1 Net Present Value Discount...

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Option 1 - Net Present Value Discount Rate = 7% Cost of cars = \$ 200,000.00 Annual Savings = \$ 20,000.00 Life Span = 4 years NPV = Annual Savings / (1+r) = ` YEAR SAVINGS NPV 7% D.R. 1 \$20,000.00 \$18,691.59 0.935 2 \$20,000.00 \$17,468.77 0.873 3 \$20,000.00 \$16,325.96 0.816 4 \$20,000.00 \$15,257.90 0.763 Amount Invested = \$ 200,000.00 Total Present Value of Savings = \$67,744.23 Total Present Value of Annual Savings = \$67,744.23 Net Present Value (NPV) = \$132,255.77 Explanation: Option 2 - Net Present Value Discount rate = 5% Cost of cars = \$185,000 Annual Savings = 90,000 Life span = 5 years NPV = Annual Savings / (1+r) = YEAR SAVINGS NPV 5% D.R. 1 \$90,000.00 \$85,714.29 0.952 2 \$90,000.00 \$81,632.65 0.907 3 \$90,000.00 \$77,745.38 0.864 4 \$90,000.00 \$74,043.22 0.823 5 \$90,000.00 \$70,517.35 0.784 Amount Invested = \$185,000.00 Total Present Value of Savings = \$389,652.90 Total Present Value of Annual Savings = \$389,652.90 Net Present Value (NPV) =