Question

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 $15,600 and will produce cash flows as follows: End of Year Investment A B 1 $ 8,600 $ 0 2 8,600 0 3 8,600 25,800 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:

Answer 1

Net present value $1,363.50

Step-by-step explanation:

The computation of the net present value of B is shown below:

Year Cash flows PVIFA factor at 15% Present value

0 -$15,600 1 -$15,600

1 0 0.8696 0

2 0 0.7561 0

3 25,800 0.6575 $16,963.50

Net present value $1,363.50