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

question 63

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:
$$\begin{array}{lrr}&\underline{\text{Project A}}&\underline{\text{Project Z}}\\\text{Year 1}&\$30,000&\$44,000\\\text{Year 2}&44,000&70,000\\\text{Year 3}&\underline{70,000}&\underline{30,000}\\\text{Totalst}&\underline{\underline{\$ 144,000}}&\underline{\underline{\$ 144,000}}\end{array}$$
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%:
$$\begin{array} { l c } \underline{\text { Period}} & \underline{\text { Present Value of } 1 \text { at } 12 \%} \\1 & 0.8929 \\2 & 0.7972 \\3 & 0.7118\end{array}$$

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