Daryl Kearns saved $240,000 during the 30 years that he worked for a major corporation. Now he has retired at the age of 60 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 $160,000. The following table presents the estimated cash inflows for the two alternatives:
Mr. Kearns decides to use his past average return on mutual fund investments as the discount rate; it is 8 percent.
Required
Round your computation to two decimal points.
a. Compute the of each opportunity. Which should Mr. Kearns adopt based on the approach?
b. Compute the for each project. Which should Mr. Kearns adopt based on the payback approach?
c. Compare the approach with the payback approach. Which method is better in the given circumstances?
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