Annual cash inflows that will arise from two competing inves

Annual cash inflows that will arise from two competing investment projects are given below:

    

The discount rate is 12%.

Compute the present value of the cash inflows for each investment. Each investment opportunity will require the same initial investment. (Use Microsoft Excel to calculate present values. Do not round intermediate calculations.)

Annual cash inflows that will arise from two competing investment projects are given below:

Solution

Answer:

Investment A:

A

B

C=A*B

Item

Cash flow

Pv factor
at 12%

PV

Year 1 Cash Inflow

4000

0.8929

3571.6

Year 2 Cash Inflow

5000

0.7972

3986

Year 3 Cash Inflow

6000

0.7118

4270.8

Year 4 Cash Inflow

7000

0.6355

4448.5

NPV of Cash Inflows

16276.9

Investment B:

Item

Cash flow

Pv factor
at 12%

PV

Year 1 Cash Inflow

7000

0.8929

6250.3

Year 2 Cash Inflow

6000

0.7972

4783.2

Year 3 Cash Inflow

5000

0.7118

3559

Year 4 Cash Inflow

4000

0.6355

2542

NPV of Cash Inflows

17134.5

Investment A

NPV of Cash Inflows

16276.9

Investment B

NPV of Cash Inflows

17134.5

Investment A:	A	B	C=A*B
Item	Cash flow	Pv factor at 12%	PV
Year 1 Cash Inflow	4000	0.8929	3571.6
Year 2 Cash Inflow	5000	0.7972	3986
Year 3 Cash Inflow	6000	0.7118	4270.8
Year 4 Cash Inflow	7000	0.6355	4448.5
NPV of Cash Inflows			16276.9
Investment B:
Item	Cash flow	Pv factor at 12%	PV
Year 1 Cash Inflow	7000	0.8929	6250.3
Year 2 Cash Inflow	6000	0.7972	4783.2
Year 3 Cash Inflow	5000	0.7118	3559
Year 4 Cash Inflow	4000	0.6355	2542
NPV of Cash Inflows			17134.5