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**

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1
$
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