Question

In: Finance

The cash flows for four investments have been identified as follows: Investment A B C D...

The cash flows for four investments have been identified as follows:

Investment

A

B

C

D

Cash Flow Today

in thousands of dollars

-8.0

-12.7

-6.0

-2.2

Cash Flow in One Year

in thousands of dollars

9.4

14.3

7.05

2.59

Based on the above information, and with an interest rate of 5%, which is the best investment?

		A) Investment A
		B) Investment B
		C) Investment C
		D) Investment D

Expert Solution

A) Investment A

Working:

When Cash inflows and cash outflows are given for different periods, then such projects are evaluated on the basis of Net Present Value.

		A	B	C	D
Cash Flow in One Year in thousands of dollars	a	9.4	14.3	7.05	2.59

Present value of 1	b=1.05^-1	0.952381	0.952381	0.952381	0.952381

Present value of cash flows in thousand of dollars	c=a*b	8.95	13.62	6.71	2.47


Cash Flow Today in thousands of dollars	d	-8.0	-12.7	-6.0	-2.2

Net Present Value in thousand of dollars	c+d	0.95	0.92	0.71	0.27


Since Project A has highest Net Present Value, investment in Project A is advised here.

jeff jeffy answered 2 years ago

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