Question

Annual cash inflows from two competing investment opportunities are given below. Each investment opportunity will require the same initial investment. Compute the present value of the cash inflows for each investment using a 16% discount rate. (PLEASE ROUND EACH DISCOUNTED CASH FLOW TO THE NEAREST DOLLAR)

Year	Investment X	Investment Y
1	$5,500	7,000
2	6,000	6,500
3	6,500	6,000
4	7,000	5,500
Total	$25,000	$25,000

Answer 1

Answer-

Calculation of Net Present Value the cash inflows
Investment X
	Net Cash Flows $ (a)	Present Value of 1 at 16% (b)	Present Value of cash flows (c=a*b) $
Year 1	5500	0.862	4741
Year 2	6000	0.743	4458
Year 3	6500	0.641	4167
Year 4	7000	0.552	3864
Totals
Total present value of cash inflows			17230

Calculation of Net Present Value the cash inflows
Investment Y
	Net Cash Flows $ (a)	Present Value of 1 at 16% (b)	Present Value of cash flows (c=a*b) $
Year 1	7000	0.862	6034
Year 2	6500	0.743	4830
Year 3	6000	0.641	3846
Year 4	5500	0.552	3036
Totals
Total present value of cash inflows			17746