Question

You are given three investment alternatives to analyze. The cash flows from these three investments are as​ follows:

Investment
End 0f Year	A	B	C
1	$3,000	$1,000	$6,000
2	4,000	1,000	6,000
3	5,000	1,000	(6,000)
4	(6,000)	1,000	(6,000)
5	6,000	5,000	16,000

a.  What is the present value of investment A at an annual discount rate of 15 percent?

b.  What is the present value of investment B at an annual discount rate of 15 percent?

c.  What is the present value of investment C at an annual discount rate of 15 percent?

Answer 1

D8 fc =SUM(D3:07) BC D А 1 A 2 year Cash flows pv@15% Present value 1 $ 3,000.00 0.8696 $ 21 $ 4,000.00 0.7561 $ $ 5,000.00 0.6575 $ $ (6,000.00)| 0.5718$ 6,000.00 0.49721 $ NPV 2,608.70 3,024.57 3,287.58 (3,430.52) 2,983.06 8,473.39 $ year Cash flows 1 $ 1,000.00 1,000.00 1,000.00 1,000.00 5 $ 5,000.00 pv@15% Present value 0.8696 $ 0.7561 $ 0.6575 $ 0.5718$ 0.4972 $ NPV 869.57 756.14 657.52 571.75 2,485.88 5,340.86 Is year Cash flows pv@15% Present value 1 $ 6,000.00 0.8696 $ 2 $ 6,000.00 0.7561 $ $ (6,000.00) 0.6575 $ $ (6,000.00) 0.5718 $ 5 $ 16,000.00 0.49721 S NPV 5,217.39 4,536.86 (3,945.10) (3,430.52) 7,954.83 10,333.46

D8 fc =SUM(D3:07) в A 1 A 2 year 31 42 53 64 75 Cash flows 3000 4000 5000 pv@15% =1/1.15 =C3/1.15 =C4/1.15 =C5/1.15 =C6/1.15 NPV Present value T=B3*C3 =B4*C4 =B5*C5 =B6*C6 =B7*C7 =SUM(D3:07) -6000 6000 9 B 10 year 11 1 12 2 13 3 14 4 Cash flows 1000 1000 1000 1000 5000 pv@15% =1/1.15 =C11/1.15 =C12/1.15 =C13/1.15 =C14/1.15 NPV Present value =B11*C11 =B12*C12 =B13*C13 =B14*C14 =B15*C15 =SUM(D11:D15) 15 5 16 17 C 18 year 19 1 20 2 21 3 Cash flows 6000 6000 -6000 -6000 16000 pv@15% =1/1.15 =C19/1.15 =C20/1.15 =C21/1.15 =C22/1.15 NPV Present value =B19*C19 =B20*C20 =B21*C21 =B22*C22 =B23*C23 =SUM(D19:D23) 23 5