In: Finance
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?
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.