Question

A company has two investment possibilities, with the following cash inflows: Investment Year 1 Year 2 Year 3 A $1,100 1,300 1,600 B $1,700 1,700 1,700 If the firm can earn 7 percent in other investments, what is the present value of investments A and B? Use Appendix B and Appendix D to answer the question. Round your answers to the nearest dollar. PV(Investment A): $ PV(Investment B): $ If each investment costs $4,000, is the present value of each investment greater than the cost of the investment? The present value of investment A is the cost. The present value of investment B is the cost.

Answer 1

Cash flows of two investments are given and asked to find the present values of these investments. All the calculations and formulas are included in the below images:

Some Guren, Cashflows of ear Investment & Investment B 1 $1,100 $1,700 $ 11300 $1,700 $1,600 $1,700 Rate of the funnet = 7 Preseut value = + Pzt SP - (Art) (Art) (Mr*in khere, - Pul2 - - 1P are Cashflows... r* is rate of return € 77.) non number of years (= 3). i present value + lia (Hr*) + BA (Art) P3A Utra) 3 100 (10.07) 1300 TH0.07) 2 17600 t 10.07) 3. = 1028.04+1,135.47€ 1,306.08. - $ 3,469.59. ^ $ 3, 4 70

& Present value = PiB ( Hry & BB & B Hr*j2 . (Hr* 3 = 1.700 + 1,700 ( 10.07) (H007) 1,700 (H0.07) 3 E 1588.79 +1,484.86 +1,387.71 - $ 4,461:36. ^ $4,461. Giren, énvestment Cost is $4,000. ........ .................. 16 Present valore of a < Investment Cost... ($3,470) "< ($4,000) and (2) present value of B > Investment Cost C$4,461) > ($4,000)