Alfarsi Industries uses the net present value method to make investment decisions and requires a 15% annual
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Question:
Alfarsi Industries uses the net present value method to make investment decisions and requires a 15% annual return on all investments. The company is considering two different investments. Each require an initial investment of $14,200 and will produce cash flows as follows: |
End of Year | Investment | |
A | B | |
1 | $9,800 | $0 |
2 | 9,800 | 0 |
3 | 9,800 | 29,400 |
The present value factors of $1 each year at 15% are: |
1 | 0.8696 |
2 | 0.7561 |
3 | 0.6575 |
The present value of an annuity of $1 for 3 years at 15% is 2.2832 |
The net present value of Investment A is: |
$19,331.
$(14,200).
$15,200.
$(22,376).
$8,175.
Related Book For
Venture capital and the finance of innovation
ISBN: 978-0470454701
2nd Edition
Authors: Andrew Metrick
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