Question

Which of the following investments has a higher present​ value, assuming the same​ (strictly positive) interest rate applies to both​ investments? Year Investment X Investment Y 1 ​$5,000 ​$11,000 2 ​$7,000 ​$9,000 3 ​$9,000 ​$7,000 4 ​$11,000 ​$5,000

Answer 1

Investment Y has a greater present value

Step-by-step explanation:

present value is the sum of disoucnted cashflows

i would choose an interest rate of 10% to calcuate the present values

for investment X

cash flow in year 1 = $5,000

cash flow in year 2 = $7,000

cash flow in year 3 = $9,000

cash flow in year 4 = $11,000

I = 10%

PV = $24,605.56

or investment Y

cash flow in year 1 = $11,000

cash flow in year 2 =$9,000

cash flow in year 3 = $7,000

cash flow in year 4 = $5,000

I = 10%

PV = $26,112.29

Investment Y has a greater present value

To find the PV using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

3. Press compute