Question

The following three investment opportunities are available. The returns for each investment for each year vary, but the first cost of each is $20,000. MARR is 9%/year.

End of Year Investment 1 Investment 2 Investment 3
1 $8,000 $11,000 $9,500
2 $9,000 $10,000 $9,500
3 $10,000 $9,000 $9,500
4 $11,000 $8,000 $9,500
Based on a future worth analysis, which investment is preferred?

Answer 1

the second investment

Step-by-step explanation:

The future worth can be determined by first determining the net present value and then finding the future value

Net present value is the present value of after-tax cash flows from an investment less the amount invested.

NPV can be calculated using a financial calculator

Investment 1

Cash flow in year 0 = $-20,000.

Cash flow in year 1 = $8,000.

Cash flow in year 2 = $9,000.

Cash flow in year 3 = $10,000.

Cash flow in year 4 = $11,000.

I = 9%

NPV = $10,429.08

Cash flow in year 0 = $-20,000.

Cash flow in year 1 = $11,000.

Cash flow in year 2 = $10,000.

Cash flow in year 3 = $9,000.

Cash flow in year 4 = $8,000.

I = 9%

NPV = $11,125.60

Cash flow in year 0 = $20,000

Cash flow in year 1 TO 4 = 9500

I = 9%

NPV = $10,777.34

Future value = PV x (1 + r)^n

1.

2. $11,125.60 x (1.09)^4

$10,777.34 x (1.09)^4 =