G15 A B E F 1 Year Investment 1 Investment 2 Investment 3 Cost of Capital 2 Year 0 (today) Buy Stock (100,000) (100,000) (100,000) 6% 3 Year 1 Dividends 5,000 6,000 4 Year 2 Dividends 6,000 6,000 5 Year 3 Dividends 7,000 6,000 6 Year 4 Dividends 8,000 6,000 7 Year 5 Dividends 9,000 6,000 8 Year 6 Dividends 10,000 6,000 9 Year 7 Dividends 11,000 6,000 10 Year 8 Sell Stock 100,000 156,000 114,000 11 12 Net Cash Flows over Life (not discounted) 56,000 56,000 56,000 13 14 Net Present Value (NPV) $5,757.39 ($2,003.46) $4,735.19 15 Required: 1. According to the NPV analysis, which investment has the highest NPV over the life of the investment? Investment 2 Investment 3 Investment 1 2. According to the NPV analysis, which investment is least profitable over the life of the investment? Investment 3 Investment 2 Investment 1 3. What is the amount of net cash flows (not discounted) over the life of the investment? $114,000 $100,000 $56,000 $66.000 4. What would be the present value for a company that has a 6% cost of capital and receives $21,000 per year each of the next eight years? $131,318.87 $129,413.23 $168,000.00 $130,405.67 5. What would the net cash flows (not discounted) for a company that makes a $100,000 investment in year 0, and then receives $21,000 per year each of the next eight years? $68,000 $0 $100,000 $168,000