Question

You are given three investment alternatives to analyze. The cash flows from these three investments are as​ follows:

End of Year	A	B	C
1	$3,000	$1,000	$4,000
2	4000	1000	4000
3	5000	1000	(4,000)
4	-6000	1000	(4,000)
5	6000	4000	14000

a. What is the present value of investment A at an annual discount rate of 9 ​percent? ​$____​(Round to the nearest​ cent.)

b. What is the present value of investment B at an annual discount rate of 9 ​percent? ​$____​(Round to the nearest​ cent.)

c. What is the present value of investment C at an annual discount rate of 9 ​percent? ​$____​(Round to the nearest​ cent.)

Answer 1

a)

The Present value factor is calculated as 1/(1.09)^n , where n is the year

For investment A

Year	Cash Flow	Pv Factor @9%	Cash flow * PV factor
1	3000	0.917	2752.294
2	4000	0.842	3366.720
3	5000	0.772	3860.917
4	-6000	0.708	-4250.551
5	6000	0.650	3899.588
Total =	9628.968

Present value = $ 9628.97

b)

For investment B

Year	Cash Flow	Pv Factor @9%	Cash flow * PV factor
1	1000	0.917	917.431
2	1000	0.842	841.680
3	1000	0.772	772.183
4	1000	0.708	708.425
5	4000	0.650	2599.726
Total =	5839.445

Present value = $ 5839.45

c)

For investment C

Year	Cash Flow	Pv Factor @9%	Cash flow * PV factor
1	4000	0.917	3669.725
2	4000	0.842	3366.720
3	-4000	0.772	-3088.734
4	-4000	0.708	-2833.701
5	14000	0.650	9099.039
Total =	10213.049

Present value = $ 10213.05