Question
Consider the investments and cash flows presented in the table below. Cost of each = 8,000 Net Cash Flows Year Investment A Investment B Investment
Consider the investments and cash flows presented in the table below.
| Cost of each = 8,000 | Net Cash Flows | ||
| Year | Investment A | Investment B | Investment C |
| 1 | 3,000 | 1,000 | 0 |
| 2 | 3,000 | 2,000 | 0 |
| 3 | 3,000 | 3,000 | 5,000 |
| 4 | 3,000 | 4,000 | 5,000 |
| 5 | 3,000 | 5,000 | 5,000 |
Calculate the payback, NPV, and Benefit/Cost ratio for each investment. Assume that the cost of capital is 8%.
Which of the alternatives are preferred using payback, NPV, and benefit/cost ratio?
If you could only invest in one of these investments, which one would you invest in? Why? Explain in one paragraph.
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Essentials Of Investments
Authors: Zvi Bodie, Alex Kane, Alan J. Marcus
8th Edition
0077606779, 978-0697789945
