Which of the following items is an advantage of the discounted cash flow (DCF) model, compared with the residual operating income (ROPI) model? A. It forecasts residual operating income which is easier than forecasting cash flow. B. It utilizes information from both the balance sheet and income statement for valuation model. C. It is well known and widely accepted model D. It focuses on value drivers such as margins and turnovers E. All of the above

Opportunity 1 results in a greater NPV.

Explanation:

NPV of Opportunity 1 = (Cash received in Year 5 / (100% + Discount rate)^Number of years) - Cash payment now = ($14,000 / (100% + 6%)^5) - $4,000 = $10,461.61 - $4,000 = $6,461.61

NPV of Opportunity 2 = (Cash received in Year 3 / (100% + Discount rate)^Number of years) + (Cash received in Year 5 / (100% + Discount rate)^Number of years) = ($3,500 / (100% + 6%)^3) + ($3,500 / (100% + 6%)^5) = $2,938.67 + $2,615.40 = $5,554.07

Since NPV of Opportunity 1 which is $6,461.61 is greater than NPV of Opportunity 2 which is $5,554.07, this implies that Opportunity 1 results in a greater NPV.