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 |
Solutions
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 3 years agoRelated Solutions
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