Question

- Freefall, Inc., has two independent investment opportunities, each requiring an initial investment of $65,000. The company’s required rate of return is 8 percent. The cash inflows for each investment are provided as follows.

- Without resorting to calculations, which investment will have the highest net present value? Explain.
- Calculate the net present value for each investment (remember to include the initial investment cash outflow in your calculation). Should the company invest in either investment? Round to the nearest dollar.

Answer #1

a. **Investment
Y*** , will have the highest
NPV* because Increasing time period decrease the
present value factor and decreasing time period increases the
present value factor, due to this present value increases or
decreases

b. *Investment
Y*

Year | Cash flow | PVF(8%, n year) | Present value |

0 | (65000) | 1 | (65000) |

1 | 35000 | 0.926 | 32410 |

2 | 25000 | 0.857 | 21425 |

3 | 15000 | 0.794 | 11910 |

4 | 5000 | 0.735 | 3675 |

Net present Value |
$4420 |

*Investment
Z*

Year | Cash flow | PVF(8%, n year) | Present value |

0 | (65000) | 1 | (65000) |

1 | 5000 | 0.926 | 4630 |

2 | 15000 | 0.857 | 12855 |

3 | 25000 | 0.794 | 19850 |

4 | 35000 | 0.735 | 25725 |

Net present Value |
($1940) |

*The company should* **invest in Investment Y** as its
NPV is higher than the Investment Z

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...

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

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 14%
discount rate. (PLEASE ROUND EACH DISCOUNTED CASH FLOW TO THE
NEAREST DOLLAR)
Year
Investment X
Investment Y
1
$4,500
6,000
2
5,000
5,500
3
5,500
5,000
4
6,000
4,5,00
Total
$21,000
$21,000
(Total: 10 marks; 5 marks for X and Y
each)

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 14% discount rate. (PLEASE ROUND EACH
DISCOUNTED CASH FLOW TO THE NEAREST DOLLAR) Year Investment X
Investment Y 1 $4,500 6,000 2 5,000 5,500 3 5,500 5,000 4 6,000
4,5,00 Total $21,000 $21,000
1. (Total: 10 marks; 5 marks for X and Y each)

Annual cash inflows from two competing investment opportunities
are given below. Each investment opportunity will require the same
initial investment.
Investment X
Investment Y
Year 1
$
4,000
$
7,000
Year 2
5,000
6,000
Year 3
6,000
5,000
Year 4
7,000
4,000
Total
$
22,000
$
22,000
Click here to view Exhibit 11B-1, to determine the appropriate
discount factor(s) using tables.
Required:
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investment using a 12%...

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B
C
year
1
$300
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2
300
400 200
3
300
200 400
4
300
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Dwight Donovan, the president of Zachary Enterprises, is
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