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Home Q & A Board Science-Related Homework Help Mathematics
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majarm majarm
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6 years ago
A selection has to be made between two investment alternatives. The first alternative offers a net return of $47 000.00 after three years, $30 000.00 after five years and $26 000.00 after seven years. The second alternative provides a net return of $13 000.00 per year for seven years. Determine the preferred alternative according to the discounted cash flow criterion if money is worth 11%.
Textbook 
Contemporary Business Mathematics with Canadian Applications

Contemporary Business Mathematics with Canadian Applications


Edition: 11th
Authors:
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#1
6 years ago
ALT. 1 = 47000.00(1.11)-3 + 30000.00(1.11)-5 + 26000.00(1.11)-7
   = 47000.00(.7311914) + 30000.00(.5934513) + 26000.00(.4816584)
   = 34366.00 + 17803.54 + 12523.12 = $64692.66 = $64 693.
ALT. 2 = 13000.00  = 13000.00(4.7121963) = $61258.55 = $61 259
Since at 11% the present value of Alternative 1 is greater than the present value of Alternative 2, Alternative 1 is preferable.
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