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You are given three investment alternatives to analyze. The cash flows from these three investments are...

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Finance

You are given three investment alternatives to analyze. The cashflows from these three investments are as? follows:

End of yearabc
1$1,000$2,000$6,000
22,0002,0006,000
33,0002,000(6,000)
4(4,000)2,000(6,000)
54,0005,00016,000

What is the present value of each of these three investments ifthe appropriate discount rate is 9 percent?

Answer & Explanation Solved by verified expert
3.6 Ratings (557 Votes)

Inv a
Discount rate 0.09
Year 0 1 2 3 4 5
Cash flow stream 0 1000 2000 3000 -4000 4000
Discounting factor 1 1.09 1.1881 1.295029 1.4115816 1.538624
Discounted cash flows project 0 917.4312 1683.36 2316.55 -2833.701 2599.726
NPV = Sum of discounted cash flows
NPV Inv a = 4683.37
Where
Discounting factor = (1 + discount rate)^(Corresponding period in years)
Discounted Cashflow= Cash flow stream/discounting factor
Inv b
Discount rate 0.09
Year 0 1 2 3 4 5
Cash flow stream 0 2000 2000 2000 2000 5000
Discounting factor 1 1.09 1.1881 1.295029 1.4115816 1.538624
Discounted cash flows project 0 1834.862 1683.36 1544.367 1416.8504 3249.657
NPV = Sum of discounted cash flows
NPV Inv b = 9729.1
Where
Discounting factor = (1 + discount rate)^(Corresponding period in years)
Discounted Cashflow= Cash flow stream/discounting factor
Inv c
Discount rate 0.09
Year 0.00% 1 2 3 4 5
Cash flow stream 0 6000 6000 -6000 -6000 16000
Discounting factor 1 1.09 1.1881 1.295029 1.4115816 1.538624
Discounted cash flows project 0 5504.587 5050.08 -4633.1 -4250.551 10398.9
NPV = Sum of discounted cash flows
NPV Inv c = 12069.92
Where
Discounting factor = (1 + discount rate)^(Corresponding period in years)
Discounted Cashflow= Cash flow stream/discounting factor

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Transcribed Image Text

You are given three investment alternatives to analyze. The cashflows from these three investments are as? follows:End of yearabc1$1,000$2,000$6,00022,0002,0006,00033,0002,000(6,000)4(4,000)2,000(6,000)54,0005,00016,000What is the present value of each of these three investments ifthe appropriate discount rate is 9 percent?

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