^^^ This should be the answer but can you explain the formulas that would go into rows C&D&E. I've tried doing it myself like this but keep getting different answers in excel.

You are a rational investor and would like to invest some money in a fund. Your required rate of return is 10%. Your broker called and present your with 2 choices: 1. Fund A requires $1,000 upfront investment, and pays you $400 end of year 1, $800 end of year 2, and $200 end of year 3; 2. Fund B also requires $1,000 upfront investment, and pays you $800 end of year 1, $400 end of year 2, and $200 end of year 3. Which one would you choose? Please state clearly your criteria and the formulas you use to reach that decision. Year Fund A Fund B A B 0 $ (1,000) $ (1,000) 1 $ 400 $ 800 2 $ 800 $ 400 3 $ 200 $ 200 PVIF@10% 1.000 $ 0.909 $ 0.826 $ 0.751 $ Present value Fund A Fund B AXC BxC (1,000) $ (1,000) 364 $ 727 661 $ 331 150 $ 150 Net present value $ 175 $ 208 Fund B is better option, as it has highest NPV