A Company Is Considering Two Alternative Investment Opportunities, Each of Which

question 47

Essay

A company is considering two alternative investment opportunities, each of which requires an initial cash outlay of $110,000.The expected net cash flows from the two projects follow:
$\begin{array}{lrr}& \underline{\text { Project A}}& \underline{\text {Project Z }}\\\text { Year 1 } & \$ 30,000 & \$ 44,000 \\\text { Year 2 } & 44,000 & 70,000 \\\text { Year 3 } & \underline{70,000 }& \underline{30,000}\\\text { Totals } & \underline{\$ 144,000} & \underline{\$ 144,000}\end{array}$ Required:
a, Based on a comparison of their net present values, and assuming the same discount rate (greater than zero)is required for both projects, which project is the better investment? (Check one answer.)
________________ Project A
________________ Project Z
________________ The projects are equally desirable
B)Use the table values below to find the net present value of the cash flows associated with Project A, discounted at 12%:
$\begin{array}{lc}\underline {\text { Periods }} & \underline {\text { Present Value of } 1 \text { at } 12 \%} \\ 1 & 0.8929 \\2 & 0.7972 \\3 & 0.7118\end{array}$