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%:
$\begin{array}{lc}\underline {\text { Periods }} & \underline {\text { Present Value of } 1 \text { at } 12 \%} \\ 1 & 0.8929 \\2 & 0.7972 \\3 & 0.7118\end{array}$

---

Definitions:

Exchange Rate

The price of one country's currency expressed in the currency of another country.

Subsequent Measurement

The re-evaluation of an asset or liability's carrying amount at each reporting date after its initial recognition, considering factors such as depreciation or amortization.

Monetary

Relating to money or currency, often referring to financial strategies or policies involving money supply and interest rates.