Question

Annual cash inflows that will arise from two competing investment projects are given below:

    

Year	Investment A	Investment B
1	$ 4,000	$7,000
2	5,000	6,000
3	6,000	5,000
4	7,000	4,000
Total	$22,000	$22,000

The discount rate is 12%.

Required:

Compute the present value of the cash inflows for each investment. Each investment opportunity will require the same initial investment. (Use Microsoft Excel to calculate present values. Do not round intermediate calculations.)

Investment A:
Item	RATE	NPER	PMT	FV	PV
Year 1 Cash Inflow
Year 2 Cash Inflow
Year 3 Cash Inflow
Year 4 Cash Inflow
NPV of Cash Inflows
Investment B:
Item	RATE	NPER	PMT	FV	PV
Year 1 Cash Inflow
Year 2 Cash Inflow
Year 3 Cash Inflow
Year 4 Cash Inflow
NPV of Cash Inflows

Answer 1

Investment A:	A	B	C=A*B
Item	Cash flow	Pv factor at 12%	PV
Year 1 Cash Inflow	4000	0.8929	3571.6
Year 2 Cash Inflow	5000	0.7972	3986
Year 3 Cash Inflow	6000	0.7118	4270.8
Year 4 Cash Inflow	7000	0.6355	4448.5
NPV of Cash Inflows			16276.9
Investment B:
Item	Cash flow	Pv factor at 12%	PV
Year 1 Cash Inflow	7000	0.8929	6250.3
Year 2 Cash Inflow	6000	0.7972	4783.2
Year 3 Cash Inflow	5000	0.7118	3559
Year 4 Cash Inflow	4000	0.6355	2542
NPV of Cash Inflows			17134.5

Investment A	NPV of Cash Inflows	16276.9
Investment B	NPV of Cash Inflows	17134.5