Alfarsi Industries uses the net present value method to make investment decision

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 $15,900 and will produce cash flows as follows: End of Year Investment A B 1 $8,900 $0 2 8,900 0 3 8,900 26,700 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: $17,555. $(15,900). $10,800. $(20,321). $4,420.

Explanation / Answer

Net present value of Investment A = (8900*2.2832)-15900= 4420

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