Morrisey Company has two investment opportunities. Both investments cost $5,500

Question

Morrisey Company has two investment opportunities. Both investments cost $5,500 and will provide the same total future cash inflows. The cash receipt schedule for each investment is given below:

The net present value of Investment II assuming an 8% minimum rate of return would be which of the following amounts? (Do not round your PV factors and intermediate calculations. Round your answer to nearest whole dollar.)

A. $6,492

B. $992

C. $5,880

D. $38
0

inv 1 inv 2 period 1 $1000 $1000 period 2 1000 2000 period 3 2000 3000 period 4 4000 2000 total 8000 8000

Explanation / Answer

SOLUTION :

Calculation of Net Present value of Investment II

Period

Inflow

Discount rate @8%

Present Value of inflow

1

1000

0.925926

                      926

2

2000

0.857339

                  1,715

3

3000

0.793832

                  2,381

4

2000

0.73503

                  1,470

Total (A)

                  6,492

Present value of Outflow

(B)

                  5,500

Net Present Value

(A-B)

                      992

Calculation of Net Present value of Investment II

Period

Inflow

Discount rate @8%

Present Value of inflow

1

1000

0.925926

                      926

2

2000

0.857339

                  1,715

3

3000

0.793832

                  2,381

4

2000

0.73503

                  1,470

Total (A)

                  6,492

Present value of Outflow

(B)

                  5,500

Net Present Value

(A-B)

                      992

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