Homework Answers
Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)
A:
Present value=6/1.07+6/1.07^2+6/1.07^3+6/1.07^4+6/1.07^5+6/1.07^6+6/1.07^7
=$32.34 million(Approx)
B:
Present value=5/1.07+5/1.07^2+5/1.07^3+7/1.07^4+7/1.07^5+7/1.07^6+7/1.07^7
=$32.48 million(Approx).
Hence B is better having higher present value.
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