A company has 2 investment opportunities with the following cash flows: &n

A company has 2 investment opportunities with the following cash flows:

Year 1 Year 2 Year 3

Investment A $1,500 $1,250 $1,800

Investment B $1,500 $1,500 $1,500

If a company can earn 5% in other investments, what is the present value of investments A and B?

Investment A = $4,084.50 Investment B = $4,117.20

Investment A = $4,084.50 Investment B = $4,084.50

Investment A = $4,117.20 Investment B = $4,084.50

Investment A = $4,275 Investment B = $3,858.18

Expert Solution

Ans Investment A = $4,117.20 Investment B = $4,084.50

INVESTMENT A
Year	Project Cash Flows (i)	DF@ 5%	DF@ 5% (ii)	PV of Project ( (i) * (ii) )

1	1500	1/((1+5%)^1)	0.952	1,428.57
2	1250	1/((1+5%)^2)	0.907	1,133.79
3	1800	1/((1+5%)^3)	0.864	1,554.91
		PV		4,117.27

INVESTMENT B
Year	Project Cash Flows (i)	DF@ 5%	DF@ 5% (ii)	PV of Project ( (i) * (ii) )

1	1500	1/((1+5%)^1)	0.952	1,428.57
2	1500	1/((1+5%)^2)	0.907	1,360.54
3	1500	1/((1+5%)^3)	0.864	1,295.76
		PV		4,084.50

jeff jeffy answered 2 years ago

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