Alfarsi Industries uses the net present value method to make investment decision

Question

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 $16,000 and will produce cash flows as follows: End of Year Investment A B 1 $9,000 $0 2 9,000 0 3 9,000 27,000 The present value factors of $1 each year at 15% are: 1 0.8696 2 0.7561 3 0.6575 The present value of an annuity of $1 for 3 years at 15% is 2.2832 The net present value of Investment B is: $1,753. $(17,753). $11,000. $4,549.

Explanation / Answer

The net present value of Investment B : Present values of cashinflows - Initial outflow

                                                            (27000*0.6575) - 16000    = $1,753 Answer

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.