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 $15,300 and will produce cash flows as follows:

End of Year	Investment
	A	B
1	$ 8,300	$ 0
2	8,300	0
3	8,300	24,900

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:

Multiple Choice

• $1,072.

• $(16,372).

• $9,600.

• $41,272.

• $-6,312.

The accounting rate of return method has two weaknesses. It ignores the time value of money, and it does not directly consider cash flows and their timing.

True/ False