Question

A financial manager with $1000 to invest is faced with two competing alternatives both of which cost $1000,Alternative A will annually pay $275 for five years while Alternative B pays $300 a year for two years and $250 for three years'If the manager wants to earn at least 10 percent , which investment should be selected?

Answer 1

	Alternative A	Alternative B
Present value of cash inflow	PVA 10%,5* Cash flow	[PVA 10%,2*CF2]+[PVF 10%,3*CF3]+[PVF 10%,4*CF4]+[PVF 10%,5*CF5]
	3.79079*275	[1.73554*300]+[.75131*250]+[.68301*250]+[.62092*250]
	1042.47	1034.47
less:cash outflow	(1000)	(1000)
NPV	42.47	34.47

since NPV of alternative 1 is higher ,it should be selected .

**find present value annuity factor and present value factor from their table respectively .at 10% for n = 1,2,3,4,5 or using financial calculator.