Appendix B
Appendix D
A company has two investment possibilities, with the following cash inflows:
Investment | Year 1 | Year 2 | Year 3 |
A | $1,500 | 1,900 | 2,200 |
B | $1,400 | 1,400 | 1,400 |
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 (less than or greater
than)
The present value of investment B is (less than or greater
than)
PV = CF * PVF(r%, n)
Investment A:
Year | CF | PVF @7% | Disc CF |
1 | $ 1,500.00 | 0.9346 | $ 1,401.87 |
2 | $ 1,900.00 | 0.8734 | $ 1,659.53 |
3 | $ 2,200.00 | 0.8163 | $ 1,795.86 |
PV of Cash flows | $ 4,857.26 |
Investment B:
Year | CF | PVF @7% | Disc CF |
1 | $ 1,400.00 | 0.9346 | $ 1,308.41 |
2 | $ 1,400.00 | 0.8734 | $ 1,222.81 |
3 | $ 1,400.00 | 0.8163 | $ 1,142.82 |
PV of Cash flows | $ 3,674.04 |
If COst is 4000, PV > COst for Investment A
and PV < COst for Investment B.
Appendix B Appendix D A company has two investment possibilities, with the following cash inflows: Investment...
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