Choosing the Best Investment Option
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Question: A firm has the following investment alternatives:
Cash Inflows
Year..............A.............B............C
1.................$500.........$0..........$0
2...................500.........400..........0
3...................500.........800..........0
4...................600.........900.......1,900
Which investment should be considered? Use a 10.5% discount rate.
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Solution Summary
This solution illustrates how understanding cash flows can help an investor choose which investment is the better choice. All calculations are shown and detailed in this response.
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Investment A
Year Cash flow Discount factor = Cash flow x disc. ...
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