Alfarsi Industries Uses the Net Present Value Method to Make $$\begin{array} { | r | r | r | } \hline 1 & \$ 8,000 & \$ 0 \\\hline 2 & 8,000 & 0 \\\hline 3 & 8,000 & 24,000 \\\hline\end{array}$$

question 40

Multiple Choice

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 $15,000 and will produce cash flows as follows: End of Investment
Year A B
$$\begin{array} { | r | r | r | } \hline 1 & \$ 8,000 & \$ 0 \\\hline 2 & 8,000 & 0 \\\hline 3 & 8,000 & 24,000 \\\hline\end{array}$$ Which investment should Alfarsi choose?

• A) Only Investment A is acceptable.
• B) Only Investment B is acceptable.
• C) Both investments are acceptable, but A should be selected because it has the greater net present value.
• D) Both investments are acceptable, but B should be selected because it has the greater net present value.
• E) Neither machine is acceptable.

---

Definitions:

Major Repairs

Expenditures that substantially extend the useful life of an asset or improve its functionality, as opposed to regular maintenance.

Insurance

Insurance is a financial product that provides protection against potential future losses or damages, in exchange for premium payments.

Intracompany Comparison

This involves comparing financial data or performance indicators within the same company over different time periods to assess trends or improvements.

Horizontal Analysis

An analysis method where financial statement items are compared across different periods, to identify trends or significant changes over time.