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. This technique permits the firm to rank alternative investments and help select the potentially most profitable investment.)

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Invest Var 1 Y A $1,400 1,700 1,800 B $1,500 1,500 1,500