Question

Assume that potential projects X, Y and Zwill each pay a total of $100,000 over 20 years. Xpays $8,000 per year for 10 years and $2.000 per year for 10 years. Ypays $2,000 per year for 10 years and $8.000 per year for 10 years. Z pays $5,000 per year for 20 years. Which project is likely to be most attractive to an investor? The project with large cash flows later is likely to be most attractive. The project with equal cash flows each year is likely to be most attractive. The project with large cash flows early is likely to be most attractive. The projects have equal total cash flows and are likely to be equally attractive.

Answer 1

Please find below the solution.. let me know if you need any clarification..

correct answer is option : The project with large cash flows early is likely to be more attractive.

Because if the cash flow are in early year present value or the time value of money of those cash flow will be higher compare to other cash flow stream.