Question
Yale Inc. has two independent investment opportunities, each requiring an initial investment of $260,000. The company's required rate of return is 10 percent. The cash
Yale Inc. has two independent investment opportunities, each requiring an initial investment of $260,000. The company's required rate of return is 10 percent. The cash inflows for each investment are provided below
|
| Investment A | Investment B |
| Year 1 | $140,000 | $20,000 |
| Year 2 | 100,000 | 40,000 |
| Year 3 | 60,000 | 60,000 |
| Year 4 | 40,000 | 80,000 |
| Year 5 | 20,000 | 160,000 |
| Total inflows | $360,000 | $360,000 |
| Factors: Present Value of $1 | Factors: Present Value of an Annuity | ||
| (r = 10%) | (r = 10%) | ||
| Year 0 | 1.0000 |
|
|
| Year 1 | 0.9091 | Year 1 | 0.9091 |
| Year 2 | 0.8264 | Year 2 | 1.7355 |
| Year 3 | 0.7513 | Year 3 | 2.4869 |
| Year 4 | 0.6830 | Year 4 | 3.1699 |
| Year 5 | 0.6209 | Year 5 | 3.7908 |
Refer to Exhibit 8-3. Calculate the net present value for each investment. Should the company invest in both projects?
Group of answer choices
Yes, they should invest in both projects since both have positive net present values.
The company should only invest in Investment A, since it is the only project that has a positive net present value.
There is not enough information to answer this question.
None of the answer choices is correct.
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Financial Sustainability Of Public Sector EntitiesThe Relevance Of Accounting Frameworks
Authors: Josette Caruana, Isabel Brusca, Eugenio Caperchione, Sandra Cohen, Francesca Manes Rossi
1st Edition
3030060365, 9783030060367
