Question

You are given three investment alternatives to analyze. The cash flows from these three investments are as​ follows:

Investment
End of Year	A			B		C
1	​$	2 comma 0002,000		​$	3 comma 0003,000	​$	4 comma 0004,000
2		3 comma 0003,000			3 comma 0003,000		4 comma 0004,000
3		4 comma 0004,000			3 comma 0003,000		( 4 comma 000 )(4,000)
4		( 5 comma 000 )(5,000)			3 comma 0003,000		( 4 comma 000 )(4,000)
5		5 comma 0005,000			5 comma 0005,000		14 comma 00014,000

What is the present value of each of these three investments if the appropriate discount rate is

1111

​percent?

a.  What is the present value of investment A at an annual discount rate of 11 percent?

b. What is the present value of investment B at an annual discount rate of 11 percent?

c. What is the present value of investment C at an annual discount rate of 11 percent?

Answer 1

PV = Sum [ CF * PVF(r%, n) ]

PVF (r%, n) = 1 / ( 1 + r)^n

r = Disc rate

n = nth year

Investment A:

Year	CF	PVF @11%	Disc CF
1	$ 2,000.00	0.9009	$ 1,801.80
2	$ 3,000.00	0.8116	$ 2,434.87
3	$ 4,000.00	0.7312	$ 2,924.77
4	$ -5,000.00	0.6587	$ -3,293.65
5	$ 5,000.00	0.5935	$ 2,967.26
PV of Cash Flows	$ 6,835.04

Investment B:

Year	CF	PVF @11%	Disc CF
1	$ 3,000.00	0.9009	$ 2,702.70
2	$ 3,000.00	0.8116	$ 2,434.87
3	$ 3,000.00	0.7312	$ 2,193.57
4	$ 3,000.00	0.6587	$ 1,976.19
5	$ 5,000.00	0.5935	$ 2,967.26
PV of Cash Flows	$12,274.59

Investment C:

Year	CF	PVF @11%	Disc CF
1	$   4,000.00	0.9009	$ 3,603.60
2	$   4,000.00	0.8116	$ 3,246.49
3	$ -4,000.00	0.7312	$ -2,924.77
4	$ -4,000.00	0.6587	$ -2,634.92
5	$ 14,000.00	0.5935	$ 8,308.32
PV of Cash Flows	$ 9,598.72

Pls do rate, if the answer is correct and comment, if any further assistance is required.