Question
In: Finance
You are given three investment alternatives to analyze. The cash flows from these three investments are...
You are given three investment alternatives to analyze. The cash flows from these three investments are as follows:
End of Year A B C
1 $3,000 $3,000 $4,000
2 4,000 3,000 4,000
3 5,000 3,000 (4,000)
4 -6,000 3,000 (4,000)
5 6,000 7,000 14,000
What is the present value of each of these three investments if the appropriate discount rate is 14 percent?
a. What is the present value of investment A at an annual discount rate of 14 percent?
Solutions
Expert Solution
Investment A:
| Year | Cash flow | × factor@ 14.00% | Present value |
| 0 | $ 3,000.00 | 1.0000 | $ 3,000.00 |
| 1 | $ 4,000.00 | 0.8772 | $ 3,508.77 |
| 2 | $ 5,000.00 | 0.7695 | $ 3,847.34 |
| 3 | $ (6,000.00) | 0.6750 | $ (4,049.83) |
| 4 | $ 6,000.00 | 0.5921 | $ 3,552.48 |
| $ - | |||
| $ - | |||
| $ - | |||
| PV | 2.9137 | $ 9,858.76 |
present value of investment A is $9,858.76
Investment B:
| Year | Cash flow | × factor@ 14.00% | Present value |
| 0 | $ 3,000.00 | 1.0000 | $ 3,000.00 |
| 1 | $ 3,000.00 | 0.8772 | $ 2,631.58 |
| 2 | $ 3,000.00 | 0.7695 | $ 2,308.40 |
| 3 | $ 3,000.00 | 0.6750 | $ 2,024.91 |
| 4 | $ 7,000.00 | 0.5921 | $ 4,144.56 |
| $ - | |||
| $ - | |||
| $ - | |||
| PV | 2.9137 | $ 14,109.46 |
Present value of B is $14,109.46
Investment C:
| Year | Cash flow | × factor@ 14.00% | Present value |
| 0 | $ 4,000.00 | 1.0000 | $ 4,000.00 |
| 1 | $ 4,000.00 | 0.8772 | $ 3,508.77 |
| 2 | $ (4,000.00) | 0.7695 | $ (3,077.87) |
| 3 | $ (4,000.00) | 0.6750 | $ (2,699.89) |
| 4 | $ 14,000.00 | 0.5921 | $ 8,289.12 |
| $ - | |||
| $ - | |||
| $ - | |||
| NPV | 2.9137 | $ 10,020.14 |
Present value of investment C is $10,020.14
please rate.
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