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 96

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
$$\begin{array} { | r | r | r | } \hline 1 & \$ 8,000 & \$ 0 \\\hline 2 & 8,000 & 0 \\\hline 3 & 8,000 & 24,000 \\\hline\end{array}$$ The present value factors of $1 each year at 15% are:
$\begin{array}{llcc} \text {1 } &0.8696\\ \text { 2} &0.7561\\ \text { 3 } &0.6575\\\end{array}$

The present value of an annuity of $1 for 3 years at 15% is 2.2832
The net present value of Investment B is:

• A) $780.
• B) $(15,780).
• C) $9,000.
• D) $39,797.
• E) $(5,918).

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