D 46244 E 8679 Connect Secure https://newconnect.mheducation.com/flow/connect.ht

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D 46244 E 8679 Connect Secure https://newconnect.mheducation.com/flow/connect.html xam 4 Help Save & ExitSub Alfarsi Industries uses the net present value method to make investment decisions and requires a 15% annual return on all investments. The company is considering two different investments. Each require an initial investment of $14.700 and will produce cash flows as follows End of Year Investment $9,300 0 9,300 27,9 29,3ee The present value factors of $1 each year at 15% are: 0.8696 8.7561 8.6575 3 The present value of an annuity of $1 for 3 years at 15% is 2.2832 The net present value of Investment B is Multiple Choice $3.644. $(18,344). $13,200 O Type here to search

Explanation / Answer

Net Present Value for Project B is $3,644

Working:

Project has a cash flow of $27,900 in year 3.

Present Value factor for the third year is 0.6575

Present value of $27,900 to be received in year 3 = $18,344 (27,900 x 0.6575)

Initial Invesment = $14,700.

Net Prsent Value = $3,644 ($18,344 - $14,700)

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