Urgent Please Answer

Consider the cash flows on the following two timelines :

Timeline One: -210 105 105 105 105

0 1 2 3 4

Timeline Two: -210 130 130 130

0 1 2 3

The appropriate rate of return for the risks in both business opportunities is r = 9%.

The IRR for Timeline One is 34.90%, while the IRR for Timeline Two is higher at 38.71%.

The NPV for Timeline One is $130.17, while the NPV for Timeline Two is lower at $119.07.

Why is the Net Present Value lower on the second transaction compared to the first transaction, even though the IRR on the second transaction is higher?

• Timeline Two has a lower NPV because it has lower risks than Timeline One

• Timeline Two has a lower NPV because it falls short of Market returns for the risks involved for a shorter period of time than does Timeline One

• Timeline Two has a lower NPV because it exceeds Market returns for the risks involved for a shorter period of time than does Timeline One

• none of the choices is correct

• Timeline One has a higher NPV because its discounted returns are higher each year than those of Timeline Two