You are comparing two investment options that each pay 6 percent interest, compounded annually. Both options...

You are comparing two investment options that each pay 6 percent interest, compounded annually. Both options will provide you with $12,000 of income. Option A pays $2,000 the first year followed by two annual payments of $5,000 each. Option B pays three annual payments of $4,000 each. Which one of the following statements is correct given these two investment options? Assume a positive discount rate. which option has a higer preswnr value? show the calculations of the present value for both options.

Expert Solution

Statement showing Cash flows			Option A		Option B
Particulars	Time	PVf 6%	Amount	PV
Cash inflows	1.00	0.9434	2,000.00	1,886.79	4,000.00	3,773.58
Cash inflows	2.00	0.8900	5,000.00	4,449.98	4,000.00	3,559.99
Cash inflows	3.00	0.8396	5,000.00	4,198.10	4,000.00	3,358.48
PV of Cash Inflows =PVCI				10,534.87		10,692.05

Option B has higher present Value

jeff jeffy answered 1 year ago

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