33. Evergreen Company has two investment opportunities. Both investments cost $5

Question

33. Evergreen Company has two investment opportunities. Both investments cost $5,000 and will provide the same total future cash inflows. The cash receipt schedule for each is given below: investment $1,000 1,000 2,000 mod 4 | 4000 $8,000 $3,000 2,000 2,000 Total Evergreen should be indifferent between the two investments because they provide the same total cash inflows. a. b. Evergreen should choose Investment I because of the time value of money c. Evergreen should choose Investment II because it generates more immediate cash inflows. d. Time value of money techniques are not useful for comparing these investments 34. Which of the following statements is not true? If net pres sent values are used to evaluate an investment project, the project should be a. accepted when the projects' expected cash flows are discounted at the required rate and yield a positive net present value. The net present value method compares a project's future net income to the initial b. c. When the net present value is negative, the project should be rejected. d. If net present values are used to evaluate two investments that have equal total cash inflows, the one with more cash inflows in the early years has the higher net present value.

Explanation / Answer

33) Option [c] Correct statement. Evergreen should choose Investment II because it generates more immediate cash inflows. Investments that generate more immediate cash flows will have higher NPV. 34) STATEMENT NOT TRUE: Option [b] The net present value compares a project's future net income to the initial investment. It is not net income that is compared to the initial investment; it is the cash flows that are compared with the initial investment.

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