Question
In: Accounting
Morrisey Company has two investment opportunities. Both investments cost $5,700 and will provide the same total...
Morrisey Company has two investment opportunities. Both investments cost $5,700 and will provide the same total future cash inflows. The cash receipt schedule for each investment is given below:
| Investment I | Investment II | ||||||||||
| Period 1 | $ | 1,350 | $ | 1,350 | |||||||
| Period 2 | 1,350 | 2,420 | |||||||||
| Period 3 | 2,350 | 3,490 | |||||||||
| Period 4 | 4,560 | 2,350 | |||||||||
| Total | $ | 9,610 | $ | 9,610 | |||||||
What is the net present value of Investment II assuming an 9% minimum rate of return? Use Appendix Table 1. (Do not round your intermediate calculations. Round your answer to nearest whole dollar.)
$7,635
$9,610
$1,935
$(7,420)
Solutions
Expert Solution
$1,935
| Period | Investment II | ||
| Cash inflow | PVIF @ 9% | PV of Cash inflow | |
| 1 | 1350 | 0.9174 | 1,239 |
| 2 | 2420 | 0.8417 | 2,037 |
| 3 | 3490 | 0.7722 | 2,695 |
| 4 | 2350 | 0.7084 | 1,665 |
| Total | 7,635 | ||
| (-) PV of cash outflow | -5700 | ||
| NPV | 1,935 | ||
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