You Are Faced with Two Different Investment Options

question 68

Multiple Choice

You are faced with two different investment options.The first investment provides cash flows of $1,500 per year for 10 years.The second investment provides cash flows of $3,000 for 5 years.For both investments,cash flows occur at the end of each year.Which of these has the higher present value with a discount rate of 5%?

• A) The 5-year investment
• B) They have the same PV.
• C) The 10-year investment

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Definitions:

Wasted Capacity

The portion of production capacity that goes unused or is not effectively utilized.

Capacity Shortage

A situation where the demand for a product or service exceeds the available supply or production capability.

Peak Periods

Refers to times of highest demand or activity within a business or market sector, often requiring increased resources or capacity.

Off-Peak Periods

Times when demand for a service or product is lower, often leading to reduced prices or rates to encourage usage or purchase during these times.