Chapter 16 Investment Decision Applications 1. Two investment alternatives are available. Alternative A yields a return $6000 in two years and $10000 in five years. Alternative B yields a return of $7000 now and $7000 in seven years. Which alternative is preferable if nponey is worth 11%. 2. National Credit union needs to decide whether to buy a high speed scanner for $6000 and enter a service contract requiring the payment of $45 at the end of every three months for five years or to enter a five year lease requiring the payment of $435 at the beginning of every three months. If leased, the scanner can be bought after five years for $600. At 9% compounded quarterly, should the credit union buy or lease? 3. Hans Machine Service needs a machine. The machine can be purchased for $4600 and after five years will have a salvage value of $490 or the machine can be leased for five years by making monthly payments of $111 at the beginning of each month. If money is worth 10% compounded annually, should Hans Machine Service buy or lease? Rate of return on investment Net Present Value (NPV) Present value of cash inflows - Present value of cash outlays NPV= PVIN - PV OUT