You are given three investment alternatives to analyze. The cash flows from these three investments are as follows:
Investment
End of Year A B C
1 $ 1,000 $ 1,000 $ 4,000
2 2,000 1,000 4,000
3 3,000 1,000 (4,000)
4 (4,000) 1,000 (4,000)
5 4,000 3,000 14,000
What is the present value of each of these three investments if the appropriate discount rate is 11 percent? (Round to the nearest cent.)
Present value=Cash flows*Present value of discounting factor(rate%,time period)
A:
Present value=1000/1.11+2000/1.11^2+3000/1.11^3-4000/1.11^4+4000/1.11^5
=$4456.60(Approx).
B:
Present value=1000/1.11+1000/1.11^2+1000/1.11^3+1000/1.11^4+3000/1.11^5
=$4882.80(Approx).
C:
Present value=4000/1.11+4000/1.11^2-4000/1.11^3-4000/1.11^4+14000/1.11^5
=$9598.72(Approx).
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