A company has two investment options: Option A and Option B. Option A costs $200,000 and is

Fantastic news! We've Found the answer you've been seeking!

Question:

A company has two investment options: Option A and Option B. Option A costs $200,000 and is expected to generate cash flows of $50,000 per year for the next five years. Option B costs $400,000 and is expected to generate cash flows of $100,000 per year for the next five years. Assume a discount rate of 8%.

a) Calculate the present value of the cash flows for each option.

b) Which option should the company choose based on the present value calculations?

Show all calculations and explain your answer in detail.