Annual cash inflows from two competing investment opportunities are given below. Each investment opportunity will require the sameinitialinvestment of $4,000. Mike Steal Company has a doubt about which investment opportunity is going toprovidea higher return to the company.

Year

Investment A

Investment B

2021

$3,300

$980

2022

2,600

760

2023

2,100

690

Required:

1. Compute the present value of the cash inflows for each investment using a 12% discount rate.

(6 marks)

Amount of Cash Flows

Present Value of Cash Flows

Year(s)

Investment A

Investment B

Investment A

Investment B

2021

$3,300

$980

2022

2,600

760

2023

2,100

690

Total

1. Compute Net Present Value.(6 marks)

Investment A

Investment B

Present Value of Cash Flows

Initial Cost

Net Present Value (NPV)

1. Which investment opportunities should be accepted based on the NPV analysis? Why?

(3 marks)

1. What is the Payback period for Investment A and Investment B?(8 marks)

1. Which investment opportunities should be accepted based on the payback period? Why?

(2 marks)