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Considering investment alternatives

Consider two investment alternatives with the following projected cash flows.

-Investment #1 (Year 1 is $10,000, Year 2 is $10,000, Year 3 is $10,000).
-Investment #2 (Year 1 is $0, Year 2 is $10,000, Year 3 is $25,000).

Can we assume that Investment 2 is preferable because its total cash flow over the three-year period is higher? What additional information is needed to make an informed choice between these investments?

Solution Preview

Hi there,
<br>A few things to consider:
<br>1) What is the market interest rate over the course of these three years? If interest rates are really high, then it would make more ...