Question

PLEASE HELP ME UNDERSTAND THIS PROBLEM IN EXCEL WITH ALL THE EXCEL FORMULAS.

Annual cash inflows that will arise from two competing investment projects are given below:

    

Year	Investment A	Investment B
1	$ 5,000	$8,000
2	6,000	7,000
3	7,000	6,000
4	8,000	5,000
Total	$26,000	$26,000

The discount rate is 9%.

Required:

Compute the present value of the cash inflows for each investment. Each investment opportunity will require the same initial investment. (Use Microsoft Excel to calculate present values. Do not round intermediate calculations.)

Answer 1

Correct Answer:

Requirement 1:

Investment A
A	B	C	D = B/C
years (n)	Cash Inflow	Discount Rate @ 10 % (1/1+10%)^n	Present value of Cash Inflow
1	$                   5,000	0.91743	$               4,587.16
2	$                   6,000	0.84168	$               5,050.08
3	$                   7,000	0.77218	$               5,405.28
4	$                   8,000	0.70843	$               5,667.40
present value of Investment 1			$            20,709.92

Requirement 2:

Investment B
A	B	C	D = B*C
years (n)	Cash Inflow	Discount Rate @ 9 % (1/1+9%)^n	Present value of Cash Inflow
1	$                   8,000	0.91743	$               7,339.45
2	$                   7,000	0.84168	$               5,891.76
3	$                   6,000	0.77218	$               4,633.10
4	$                   5,000	0.70843	$               3,542.13
present value of Investment 2			$            21,406.44

End of answer.

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