Annual cash inflows that will arise from two competing investment projects are g

Question

Annual cash inflows that will arise from two competing investment projects are given below:

    

The discount rate is 18%.

Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.

Compute the present value of the cash inflows for each investment. Each investment opportunity will require the same initial investment. (Use the appropriate table to determine the discount factor(s).)

Year Investment A Investment B 1 3,000       12,000       2 6,000       9,000       3 9,000      6,000       4 12,000       3,000       Total $30,000       $30,000      

Explanation / Answer

   Present Value of Cash Inflow of investment A

Year Investment A PVF(18%,n years) Present Value    

   1 3000 0.847 $2541   

2 6000 0.718 $4308

3 9000 0.609 $5481

4 12000 0.516 $6192

Present Value of Cash Inflow $ 18522

     Present Value of Cash Inflow of investment B

Year    PVF(18%,n years)   Investment B Present value

1    0.847 12000 $10164

   2 0.718 9000 $6462

   3 0.609 6000 $3654

   4 0.516 3000 $1548

  Present Value of Cash Inflow    $ 21828

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