Here the cash inflows are not same every year, so it is not an annuity. We will use simple present value table. We will use the present value (PV) of $1 to find out the required present values.
Present value of cash flows of Investment A:
Year | Cash flows | PV factor | Cash flows * PV factor |
1 | 3000 | 0.926 | 2778 |
2 | 4000 | 0.857 | 3428 |
3 | 5000 | 0.794 | 3970 |
4 | 6000 | 0.735 | 4410 |
Total | $ | 14586 |
So, present value of cash flows of investment A is $14586.
Present value of cash flows of investment B:
Year | Cash flows | Present value factor | Cash flows * Present value factor |
1 | 6000 | 0.926 | 5556 |
2 | 5000 | 0.857 | 4285 |
3 | 4000 | 0.794 | 3176 |
4 | 3000 | 0.735 | 2205 |
Total | $ | 15222 |
So, present value of cash flows of investment B is $15222.
Annual cash inflows that will arise from two competing investment projects are given below. Year 1...
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