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 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.

Answer 1