You have $6,000 available to invest. Two financial investment opportunities are available, A and B, which are described below. Assuming an annual interest rate of 5% for all Net Present Worth calculations, which investment is more economically beneficial to you?

Opportunity A:

You start a business by investing the full $6,000 to purchase equipment to produce a product that will be ready to be produced and sold starting in one year. The equipment begins to be used when you start production at the beginning of year two. It has a useful life expectancy of 5 years of operations. At the end of second year after purchase of equipment you estimate you will start to receive annual revenues of $6,200 from the product sales, but annual revenues are projected to decline by $400 per year for each successive year, with that decreasing trend continuing by the same amount each year until the end of the fifth year of operations. You will also incur annual business expenses of $800 that start at the end of the first year after purchase, will increase by $100 at the end of the second year and continue to increase by $100 each year until the end of the useful life of the equipment at five years of operations. After five years of operation, the equipment will reach the end of its useful life and you can sell it for a salvage value of $3,350. Evaluate the Net Present Worth (NPW) of this opportunity.

create a data table of given information and list of unknowns to solve for:

construct the cash flow table and cash flow diagram in a stacked column graph in an Excel worksheet for this business opportunity.

Evaluate the NPW of this business opportunity. Derive your equation to calculate NPV using the cash flow diagram you have constructed in MS Excel spreadsheet, starting with the theoretical equation for net present worth, next show the interest factor notation equation derived from the theoretical equation, then substitute in known values and clearly show all steps in your subsequent calculations to solve for NPW. You can use interest factor tables to look up values for the interest factors in you solution, but make it very clear what interest factor is matched to each numerical value you find from the interest factor table. If you choose to use algebraic interest factor equations to calculate interest factor values (which will be more work to reach a solution but is allowed), first write out the proper algebraic equation for each interest factor, then show all algebra steps to calculate the interest factor value.

Opportunity B:

You can loan the $6,000 to a very reputable business with a promissory note that states you will receive a single payment of $23,000 from the business at the end of six years from the loan date. Evaluate the NPW of this opportunity.

Evaluate the NPW of this business opportunity Derive your equation to calculate NPV using the cash flow diagram you have constructed in MS Excel spreadsheet, starting with the theoretical equation for net present worth, next show the interest factor notation equation derived from the theoretical equation, then substitute in known values and clearly show all steps in your subsequent calculations to solve for NPW. You can use interest factor tables to look up values for the interest factors in you solution, but make it very clear what interest factor is matched to each numerical value you find from the interest factor table. If you choose to use algebraic interest factor equations to calculate interest factor values, first write out the proper equation for each interest factor, then show all algebra steps to calculate the interest factor value.

Choose which investment opportunity is more economically beneficial to you. Explain your choice by explicitly stating your decision criteria.