Investment X offers to pay you $5,900 per year for 9 years, whereas Investment Y

Question

Investment X offers to pay you $5,900 per year for 9 years, whereas Investment Y offers to pay you $7,100 per year for 6 years.

Requirement 1:
(a)

Assume the discount rate is 6 percent, what is the present value of these cash flows? (Do not include the dollar signs ($). Enter rounded answers as directed, but do not use the rounded numbers in intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)


Present value
Investment X $
Investment Y $

(b) Which of these cash flow streams has the higher present value?





Requirement 2:
(a)

Assume the discount rate is 22 percent, what is the present value of these cash flows? (Do not include the dollar signs ($). Enter rounded answers as directed, but do not use the rounded numbers in intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)


Present value
Investment X $
Investment Y $

(b) Which of these cash flow streams has the higher present value?

Explanation / Answer

Requirement 1: a) Present value- Investment X $ 39,469.51 Investment Y $ 34,496.82 b) X has higher present value. Requirement 2: a) Present value- Investment X $ 18,682.68 Investment Y $ 19,503.84 b) Y has higher present value.

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