Suppose You Are Offered Two Investment Alternatives

question 61

Essay

Suppose you are offered two investment alternatives. If you choose Alternative 1, you will have to make an immediate outlay of $26 000. In return, you will receive $1500 at the end of every three months for the next ten years. If you choose Alternative 2, you will have to make an outlay of $14 000 now and $8000 in two years. In return, you will receive $60 000 ten years from now. Interest is 8.22% compounded semi-annually. Compute the net present value for each alternative and determine which investment should be accepted or rejected according to the net present value criterion.