Consider the following three investment opportunities: Project I would require a

Question

Consider the following three investment opportunities: Project I would require an immediate cash outlay of $10,000 and would result in cash savings of $3,000 each year for 5 years. Project II would require cash outlays of $3, 000 per year and would provide a cash inflow of $30,000 at the end of 5 years. Project III would require a cash outlay of $10,000 now and would provide a cash inflow of $30,000 at the end of 5 years. The discount rate is 14%. Use the net present value method to determine which, if any. of the three projects is acceptable.

Explanation / Answer

Solution.

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Year Cash Flow P.V factore P.V 0 (10,000.00)          1.0000 (10,000.00) 1        3,000.00          0.8771        2,631.30 2        3,000.00          0.7694        2,308.20 3        3,000.00          0.6749        2,024.70 4        3,000.00          0.5920        1,776.00 5        3,000.00          0.2193           657.90 NPV         (601.90)

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