# Capital Budgeting

You are comparing two investment options. The cost to invest in either option is the same today. Both options provide you with $20,000 of income. Option A pays five annual payments of $4,000 each. Option B pays five annual payments starting with $8,000 the first year followed by four annual payments of $3,000 each. Which one of the following statements is correct given these two investment options?

A. Both options are of equal value given that they both provide $20,000 of income.

B. Option A has a higher present value than option B given any positive rate of return.

C. Option B has a higher present value than option A given any positive rate of return.

D. Option B has a lower future value at year 5 than option A given a zero rate of return.

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Solution:

Since both investments cost the same and produce the same total income of $20,000. The question becomes, how soon is the ...

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Analyzing Investment Options