Present value information for three investment alternatives is shown below: Base

Question

Present value information for three investment alternatives is shown below:

Based on this information alone

a) investment alternative A has the highest return on investment.

b) investment alternative B has the highest return on investment.

c) investment alternative C has the highest return on investment.

d) all three investment alternative are producing the same return on investment.

  Investment alternative A B C   Present value of cash inflows $ 125,000 $ 30,000 $ 80,000   Present value of cash outflows $ 110,000 $ 25,000 $ 75,000

Explanation / Answer

Investment B has the highest return on investment

Investment Alternative A B C Present value of cash inflows 125000 30000 80000 Present value of acsh outflows 110000 25000 75000 Net Present value= Present value of cash inflows - Present value of cash outflows 15000 5000 5000 Return on investment = NPV / Present value of cash outflows 13.64% 20.00% 6.67%

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