3. Consider the following two investments, each of which has an original cost of $20,000. Net...
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3. Consider the following two investments, each of which has an original cost of $20,000. Net revenues ($) year 1 2 3 4 5 6 1 2 3 Investment A 5,000 5,000 5,000 4 5 6 5,000 5.000 5,000 Here is a table of discount factors (e.g. Present Value of $1.00) for different interest rates: Year 4% 0.962 0.925 0.889 0.855 0.822 0.790 Investment B 1,000 4,000 4,000 4,000 8,000 10,500 a) Calculate the payback period for investments A and B. Which is preferred by this criterion? b) Calculate the simple rate of return for investments A and B. Which is preferred by this criterion? c) Calculate the Net Present Value of A and B using a 4% discount factor. Which is preferred by this criterion? 3. Consider the following two investments, each of which has an original cost of $20,000. Net revenues ($) year 1 2 3 4 5 6 1 2 3 Investment A 5,000 5,000 5,000 4 5 6 5,000 5.000 5,000 Here is a table of discount factors (e.g. Present Value of $1.00) for different interest rates: Year 4% 0.962 0.925 0.889 0.855 0.822 0.790 Investment B 1,000 4,000 4,000 4,000 8,000 10,500 a) Calculate the payback period for investments A and B. Which is preferred by this criterion? b) Calculate the simple rate of return for investments A and B. Which is preferred by this criterion? c) Calculate the Net Present Value of A and B using a 4% discount factor. Which is preferred by this criterion?
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Solution Step1 We are asked payback period and not discounted payback period so we shall work on sim... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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