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You are given three investment alternatives to analyze. The cash flow from these

ID: 2648956 • Letter: Y

Question

You are given three investment alternatives to analyze. The cash flow from these three investments are as flows.

End of Year

A

B

C

1

$2,000

$3,000

$6,000

2

3,000

3,000

6,000

3

4,000

3,000

(6,000)

4

-5,000

3,000

(6,000)

5

5,000

5,000

16,000

a. What is the present value of investment A at an annual discount rate of 14%? (round to the nearest cent)

b. What is the present value of investment B at an annual discount rate of 14%? (round to the nearest cent)

c. What is the present value of investment C at an annual discount rate of 14%? (round to the nearest cent)

End of Year

A

B

C

1

$2,000

$3,000

$6,000

2

3,000

3,000

6,000

3

4,000

3,000

(6,000)

4

-5,000

3,000

(6,000)

5

5,000

5,000

16,000

Explanation / Answer

Discount Rate 14%           1 2 3 4 1*4 2*4 3*4 Particulars Year A B C Present Value Factor A B C 1/(1+10%)^n Cash Flow 1 $2,000 $3,000 $6,000 0.88 $1,754 $2,632 $5,263 Cash Flow 2 $3,000 $3,000 $6,000 0.77 $2,308 $2,308 $4,617 Cash Flow 3 $4,000 $3,000 ($6,000) 0.67 $2,700 $2,025 ($4,050) Cash Flow 4 ($5,000) $3,000 ($6,000) 0.59 ($2,960) $1,776 ($3,552) Cash Flow 5 $5,000 $5,000 $16,000 0.52 $2,597 $2,597 $8,310 Net Present Value $6,399 $11,338 $10,588

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