You are given three investment alternatives to analyze. The cash flow from these
ID: 2648956 • Letter: Y
Question
You are given three investment alternatives to analyze. The cash flow from these three investments are as flows.
End of Year
A
B
C
1
$2,000
$3,000
$6,000
2
3,000
3,000
6,000
3
4,000
3,000
(6,000)
4
-5,000
3,000
(6,000)
5
5,000
5,000
16,000
a. What is the present value of investment A at an annual discount rate of 14%? (round to the nearest cent)
b. What is the present value of investment B at an annual discount rate of 14%? (round to the nearest cent)
c. What is the present value of investment C at an annual discount rate of 14%? (round to the nearest cent)
End of Year
A
B
C
1
$2,000
$3,000
$6,000
2
3,000
3,000
6,000
3
4,000
3,000
(6,000)
4
-5,000
3,000
(6,000)
5
5,000
5,000
16,000
Explanation / Answer
Discount Rate 14% 1 2 3 4 1*4 2*4 3*4 Particulars Year A B C Present Value Factor A B C 1/(1+10%)^n Cash Flow 1 $2,000 $3,000 $6,000 0.88 $1,754 $2,632 $5,263 Cash Flow 2 $3,000 $3,000 $6,000 0.77 $2,308 $2,308 $4,617 Cash Flow 3 $4,000 $3,000 ($6,000) 0.67 $2,700 $2,025 ($4,050) Cash Flow 4 ($5,000) $3,000 ($6,000) 0.59 ($2,960) $1,776 ($3,552) Cash Flow 5 $5,000 $5,000 $16,000 0.52 $2,597 $2,597 $8,310 Net Present Value $6,399 $11,338 $10,588
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