A company has two investment opportunities: Alternative A returns $36,000 now, $20,000 in two years and...

A company has two investment opportunities:

Alternative A returns $36,000 now, $20,000 in two years and $8,000 in four years.

Alternative B returns $1,470 at the end of every month for four years.

The required rate of return is 8.5% compounded semi-annually. Using the discounted cash flow (DCF) method, which alternative is preferable?

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Expert Solution

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

Alternative B is preferable because its present value is higher than alternative A.

jeff jeffy answered 1 year ago

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