A company has a decision to make between two investment alternatives. The company requires a 10% return on investment. Predicted data is provided below:
The present value of an annuity for 6 years at 10% is 4.3553. This company uses straight-line depreciation.
Required:
(a) Calculate the net present value for each investment.
(b) Which investment should this company select? Explain.
Definitions:
Simple Interest
Interest assessed only on the base amount, or on whatever portion of the base amount has not been settled.
Interest
Payment made for the use of borrowed money, calculated as a percentage of the principal sum.
Simple Interest
Interest calculated only on the initial amount of money (principal), not on the interest accrued over time.
Investment
Allocation of resources, such as time, money, or effort, in hope of generating a future benefit or return.
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