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Alfarsi Industries uses the net present value method to make investment decisions and requires a...

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Accounting

Alfarsi Industries uses the net present value method to make investment decisions and requires a 15% annual return on all investments. The company is considering two different investments. Each require an initial investment of $15,100 and will produce cash flows as follows:

End of Year Investment
A B
1 $8,100 $0
2 8,100 0
3 8,100 24,300

The present value factors of $1 each year at 15% are:

1 0.8696
2 0.7561
3 0.6575

The present value of an annuity of $1 for 3 years at 15% is 2.2832

The net present value of Investment B is:

$877.

$(15,977).

$9,200.

$3,394.

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