Exercise 11A-5 Basic Present Value Concepts [LO5] Annual cash inflows from two c
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Question
Exercise 11A-5 Basic Present Value Concepts [LO5]
Annual cash inflows from two competing investment opportunities are given below. Each investment opportunity will require the same initial investment.
Compute the present value of the cash inflows for each investment using a 12% discount rate. (Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount.)
Annual cash inflows from two competing investment opportunities are given below. Each investment opportunity will require the same initial investment.
Basic Present Value Concepts [LO5] Annual cash inflows from two competing investment opportunities are given below. Each investment opportunity will require the same initial investment. Compute the present value of the cash inflows for each investment using a 12% discount rate.Explanation / Answer
Compute the present value of the cash inflows for each investment using a 12% discount rate. (Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount.)
Investment X
Present value of the cash inflows of Investment X = 2000*PVIF(12%,1) + 3000 *PVIF(12%,2) + 4000**PVIF(12%,3) + 5000**PVIF(12%,4)
Present value of the cash inflows of Investment X = 2000*0.893 + 3000*0.797 + 4000*0.712 + 5000*0.636 = $ 10205
Investment Y
Present value of the cash inflows of Investment y = 5000*PVIF(12%,1) + 4000 *PVIF(12%,2) + 3000**PVIF(12%,3) + 2000**PVIF(12%,4)
Present value of the cash inflows of Investment Y = 5000*0.893 + 4000*0.797 + 3000*0.712 + 2000*0.636 = $ 11061
Answer:
Present
Value of
Cash Flows Investment X $ 10205 Investment Y $ 11061
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