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Financial Management

1. 1. Which of the following would be the best investment based on present value? Assume an annual discount rate of 16%

a. An investment that pays $5,000 at the end of each year for 6 years, assuming annual compounding.
b. An investment that pays $1,225 at the end of each quarter for 6 years, assuming quarterly compounding
c. An investment that pays $1,200 at the beginning of each quarter 6 years, assuming quarterly compounding?
d. $19,000 today.
e. The answer cannot be determined from the information given.

Year Undiscounted free cash flows
0 (380,000)
1 20,000
2 30,000
3 200,000
4 175,000
5 130,000
6 145,000

Required rate of return 15%

Solution Preview

Project a: Payment=5000, N=6, interest(discount) rate=16%
<br>Compute present ...

$2.19