Question 1 Henrico Company has two investment opportunities. Both investments co

Question

Question 1

Henrico Company has two investment opportunities. Both investments cost $5,600 and will provide the same total future cash inflows. The cash receipt schedule for each investment is given below:

The net present value of Investment II assuming an 9% minimum rate of return would be which of the following amounts? (Do not round your PV factors and intermediate calculations. Round your answer to the nearest whole dollar.)

A. $7,237

B. $9,380

C. $7,449

D. $1,849

Question 2

Mountain Brook Company is considering two investment opportunities whose cash flows are provided below:

The company's hurdle rate is 9%. What is the present value index of Investment B? (Do not round your PV factors and intermediate calculations. Round your answer to 2 decimal places.)

A. 0.83

B. 1.43

C. 1.21

D. None of these answers are correct.

Investment I Investment II   Period 1 $ 1,300         $ 1,300           Period 2 1,300         2,360           Period 3 2,300         3,420           Period 4 4,480         2,300           Total $ 9,380         $ 9,380        

Explanation / Answer

Question 2

Years Inv I Inv II PV at 9% PV Inv I PV Inv II 1 $1,300 $1,300        0.9174 $1,193 $1,193 2 $1,300 $2,360        0.8417 $1,094 $1,986 3 $2,300 $3,420        0.7722 $1,776 $2,641 4 $4,480 $2,300        0.7084 $3,174 $1,629 Cash inflows $9,380 $9,380 $7,237 $7,449 Cash outflows $5,600 $5,600 Net present value $1,849 (D)

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