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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
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 $15,100 and will produce cash flows as follows:
End of Year | Investment | |
A | B | |
1 | $8,100 | $0 |
2 | 8,100 | 0 |
3 | 8,100 | 24,000 |
The present value factors of $1 each year at15% 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 A is:
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