Annual cash flows from two competing investment opportunities are given. Each investment opportunity will require the same initial investment.

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Requirement

1.	Assuming a 7% interest rate, which investment opportunity would you choose?

Begin by computing the present value of each investment opportunity. (Assume that the annual cash flows occur at the end of each year. If using present value tables, use factor amounts rounded to three decimal places, X.XXX. Round intermediary computations and your final answer to the nearest whole dollar.)

The present value of investment opportunity A is
The present value of investment opportunity B is

Investment opportunity

B

A

should be chosen because the present value of cash flows is

higher

lower

than the present value of investment opportunity

.B

A

	Investment A	Investment B
Year 1	$14,000	$9,000
Year 2	10,000	9,000
Year 3	3,000	9,000
Total	$27,000	$27,000

Present Value of $1
Periods	4%	5%	6%	7%	8%	10%	12%	14%	16%
Period 1	0.962	0.952	0.943	0.935	0.926	0.909	0.893	0.877	0.862
Period 2	0.925	0.907	0.890	0.873	0.857	0.826	0.797	0.769	0.743
Period 3	0.889	0.864	0.840	0.816	0.794	0.751	0.712	0.675	0.641
Period 4	0.855	0.823	0.792	0.763	0.735	0.683	0.636	0.592	0.552
Period 5	0.822	0.784	0.747	0.713	0.681	0.621	0.567	0.519	0.476
Period 6	0.790	0.746	0.705	0.666	0.630	0.564	0.507	0.456	0.410
Period 7	0.760	0.711	0.665	0.623	0.583	0.513	0.452	0.400	0.354
Period 8	0.731	0.677	0.627	0.582	0.540	0.467	0.404	0.351	0.305
Period 9	0.703	0.645	0.592	0.544	0.500	0.424	0.361	0.308	0.263
Period 10	0.676	0.614	0.558	0.508	0.463	0.386	0.322	0.270	0.227
Period 11	0.650	0.585	0.527	0.475	0.429	0.350	0.287	0.237	0.195
Period 12	0.625	0.557	0.497	0.444	0.397	0.319	0.257	0.208	0.168
Period 13	0.601	0.530	0.469	0.415	0.368	0.290	0.229	0.182	0.145
Period 14	0.577	0.505	0.442	0.388	0.340	0.263	0.205	0.160	0.125
Period 15	0.555	0.481	0.417	0.362	0.315	0.239	0.183	0.140	0.108
Period 16	0.534	0.458	0.394	0.339	0.292	0.218	0.163	0.123	0.093
Period 17	0.513	0.436	0.371	0.317	0.270	0.198	0.146	0.108	0.080
Period 18	0.494	0.416	0.350	0.296	0.250	0.180	0.130	0.095	0.069
Period 19	0.475	0.396	0.331	0.277	0.232	0.164	0.116	0.083	0.060
Period 20	0.456	0.377	0.312	0.258	0.215	0.149	0.104	0.073	0.051