A company has two investment possibilities, with the following cash inflows: If...

A company has two investment possibilities, with the following cash inflows:

If the firm can earn 7 percent in other investments, what is the present value of investments A and B? If each investment costs $4,000, is the present value of each investment greater than the cost of the investment?

(This question is a very simple example of one method of capital budgeting [Chapter 22]. This technique permits the firm to rank alternative investments and help select the potentially most profitable investment.)