Question

Problem 7-24 A firm must choose between two investment alternatives, each costing $100,000. The first alternative generates $35,000 a year for four years. The second pays one large lump sum of $160,300 at the end of the fourth year. If the firm can raise the required funds to make the investment at an annual cost of 9 percent, what are the present values of two investment alternatives? Use Appendix B and Appendix D to answer the question. Round your answers to the nearest dollar. PV(First alternative): $ PV (Second alternative): $ Which alternative should be preferred? The -Select- alternative should be preferred.

Answer 1

Present value First Second PVIF@9% First Second Year B А Аxс Вхс 1.0000 $ 0.9174 $ 1 35,000 $ 2 35,000 $ 3 35,000 $ 4 35,000 $ 160,300 32,110 $ 29,459 $ 27,026 $ 24,795 $ 0.8417 $ 0.7722 $ 0.7084 $ 113,561 $113,390 113,561 Present value Hence, Second alternative should be preferred

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