Alfarsi Industries Uses the Net Present Value Method to Make

question 57

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: The present value factors of $1 each year at 15% are:
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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Definitions:

Government Bonds

Debt securities issued by a government to support government spending, which investors can purchase, typically considered low-risk investments.

Accrued Interest

The accumulated interest on a note payable or receivable that has been earned but not yet received or paid out.

Semiannual Interest

Interest that is calculated and paid twice a year, often on bonds or loans.

Subsidiary Company

A company that is completely or partly owned and wholly controlled by another company, known as the parent company.