Annual cash flows from two competing investment opportunities are given. Each in

Question

Annual cash flows from two competing investment opportunities are given. Each investment opportunity will require the same initial investment. Assuming a 12% interest rate, which investment opportunity would you choose? Begin by computing the present value of each investment opportunity. (Assume that the annual cash flows occur at the end of each year. Round your answers to the nearest whole dollar.) The present value of investment opportunity A is $ and the present value of investment opportunity B is s .

Explanation / Answer

PV of investment A = 17280.89

PV of investment B = 16812.82

Particulars Year PVF @ 12% Investment A Investment B PV Investment A PV Investment B Cash Flows 1             0.89 11000 7000            9,821.43            6,250.00 Cash Flows 2             0.80 4000 7000            3,188.78            5,580.36 Cash Flows 3             0.71 6000 7000            4,270.68            4,982.46 Total          17,280.89          16,812.82

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