The owner of a local cinema is considering two alternative plans for renovating and improving his theater. plan a calls for an initial cash investment of $250,000,whereas plan b requires only an $180,000

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The owner of a local cinema is considering two alternative plans for renovating and improving his theater. Plan A calls for an initial cash investment of $250,000, whereas Plan B requires only an $180,000 immediate cash outlay. It has been estimated that the net cash income stream generated from Plan A would be $630,000 per year for three years, while Plan B would only generate $580,000 per year over the same period. If the prevailing interest rate for the next three years is 10% per year, which Plan will generate a higher net income at the end of the three years.

Detail Answer is given below.

Explanation:

Plan A will generate higher income at the end of three year.

Plan A

Year- timeOutlay*Discount Factor**Net present value Calculation***

1               630,000       0.9091                             572,727.27  

2               630,000       0.8264                              520,661.16  

3               630,000       0.7513                              473,328.32  

Inflow   -    

0              250,000      1.0000                             (250,000.00)

                                                                      1,316,716.75  

Plan B

Year- timeOutlayDiscount FactorNet present value Calculation

 1              580,000          0.9091                        527,272.73  

 2             580,000          0.8264                        479,338.84  

 3             580,000          0.7513                       435,762.58  

Inflow   -    

 0             180,000          1.0000                     (180,000.00)

                                                              1,262,374.15  

* Outlay as given in question

** DF=(1+i)^year where i =10% interest rate

*** PV=Outlay*DF

As shown in above calculation NPV of plan A is more than that of Plan B.

because she sucked. : )

(but so does trump, don't @ me)

answer///the madrid protocol;