Question

3. You are considering two projects with the following cash flows: Year Project A Project B 1 $ 2,500 $ 4,000 2 3,000 3,500 3 3,500 3,000 4 4,000 2,500 Select ALL of the following statements that are true concerning these two projects

A. Both projects have the same future value given a zero rate of return.

B. Project A has a lower future value than Project B, given a positive rate of return.

C. both project have the same future value at the end of year 4, given a positive rate of return.

D. Both projects have the same future value at any point in time, given a positive rate of return.

Answer 1

If rate of return is Zero, FV is Sum of cash flows, the FV is same if rate "Zero".

If Rate is +Ve:

If the Higher cash flows are received at earliest, they will receive more int Thus Project with higher Cashflows at earliest will have high FV.

Thus Project B will have higher cashflows.

OPtion A & B are correct

Pls comment, if any further assistance is required.