A company has two investment possibilities, with the following cash inflows: Investment Year 1 Year 2...
A company has two investment possibilities, with the following cash inflows:
| Investment | Year 1 | Year 2 | Year 3 |
| A | $1,200 | 1,400 | 1,700 |
| B | $1,600 | 1,600 | 1,600 |
If the firm can earn 6 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 less than or greater than Item
3 the cost?
The present value of investment B is less than or greater than Item
4 the cost?
Homework Answers
1)
Investment A:
PV(Investment A) = 1200 / (1 + 0.06)1 + 1400 / (1 + 0.06)2 + 1700 / (1 + 0.06)3
PV(Investment A) = 1,132.0755 + 1,245.995502 + 1,42.35278
PV(Investment A) = $3,805
Investment B:
PV(Investment B) = 1,600 / (1 + 0.06)1 + 1,600 / (1 + 0.06)2 + 1,600 / (1 + 0.06)3
PV(Investment B) = 1,509.434 + 1,423.9943 + 1,343.9085
PV(Investment B) = $4,277
2)
present value of investment A is less than investment
present value of investment B is greater than investment
Add Answer to:
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Appendix B Appendix D A company has two investment possibilities, with the following cash inflows: Investment...
Appendix B
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Year
A
B
1
$4,000
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$12,000
3
$12,000
$8,000
4
$16,000
$4,000
Total
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$40,000
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(Round to nearest dollar)
Compute the present value of the cash inflows for Investment B.
(Round to nearest...
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Use the following information:
Annual cash inflows that will arise from two competing
investment projects are given below:
Investment
Year
A
B
1
$4,000
$16,000
2
$8,000
$12,000
3
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4
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$4,000
Total
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The discount rate is 16%
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(Round to nearest dollar)
Compute the present value of the cash inflows for Investment B.
(Round to nearest...
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