5a)

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 $14,600 and will produce cash flows as follows:

End of Year	Investment
	A	B
1	$9,400	$0
2	9,400	0
3	9,400	28,200

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 B is:

$3,942.

$(18,542).

$13,600.

$6,862.

5b)

Vextra Corporation is considering the purchase of new equipment costing $41,000. The projected annual cash inflow is $12,200, to be received at the end of each year. The machine has a useful life of 4 years and no salvage value. Vextra requires a 12% return on its investments. The present value of an annuity of $1 for different periods follows:

Periods	12 Percent
1	0.8929
2	1.6901
3	2.4018
4	3.0373

What is the net present value of the machine (rounded to the nearest whole dollar)?

$(37,055).

$(2,900).

$41,000.

$7,055.

$(3,945).

5c)

A company is considering the purchase of new equipment for $93,000. The projected annual net cash flows are $36,600. The machine has a useful life of 3 years and no salvage value. Management of the company requires a 11% return on investment. The present value of an annuity of 1 for various periods follows:

Periods	Present value of an annuity of 1 at 11%
1	0.9009
2	1.7125
3	2.4437

What is the net present value of this machine assuming all cash flows occur at year-end?

$31,000

$4,600

$(3,561)

$35,600

$86,996