Question

h flow investment decision Personal Finance Problem Tom Alexander has an opportunity to purchase any of the investments shown in the following table, EE its year ofrece tare ghenfor each investment whichpurchaserecommendations would you make assumin tat Tomcaneant % hisi est ets? The purchase price, the amount of the single cash n Data Table Click the icon to see the Worked Solution (Formula Solution). Click the icon to see the Worked Solution (Financial Calculator Solutic ° Click the icon to see the Worked Solution (Spreadsheet Solution). present value of Investment A is扣(Round to the nearest cent) present value of Investment B is S□ (Round to the nearest cent) present value of Investment C is扣(Round to the nearest cent ) present value of Investment Diss□ (Round to the nearest c Click on the icon located on the top-right comer of the data table below in order to copy its contents into a spreadsheet) Single cash inflow Year of receipt 19 39 Investment A. Price 5336 $2.128 $560 $1.868 $5.519 $20.946 Pint Done

Answer 1

Price is the cost at which the investment is made today and single cash flow will be received at the year of receipt

So, NPV of the investment = - Price + Present Value of Single cash flow = - Price + Single Cash Flow / (1+r)ⁿ

where, r = rate of return = 10% = 0.10

n = year of receipt

Hence,

NPV of Investment A = -11200 + 18038/1.1⁴ = $1120.20

NPV of Investment B = -336 + 1868/1.1¹⁹ = $ -30.57

NPV of Investment C = -2128 + 5519/1.1⁹ = $212.59

NPV of Investment D = -560 + 20946/1.1³⁹ = $ - 50.92

NPV is highest for Investment A, and hence A should be purchased