Question

MC Qu. 110 Alfarsi Industries uses the net... 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 $14,500 and will produce cash flows as follows: End of Year Investment A B 1 $ 9,500 $ 0 2 9,500 0 3 9,500 28,500 The present value factors of $1 each year at 15% are: 1 0.8696 2 0.7561 3 0.6575 The present value of an annuity of $1 for 3 years at 15% is 2.2832 The net present value of Investment A is: Multiple Choice $7,190. $18,739. $14,000. $(21,691). $(14,500).

Answer 1

$7,190.40

Step-by-step explanation:

The computation of the net present value for the investment A is shown below:

= Present value after considering the discount factor - initial investment

where

Present value after considering the discount factor is

= Annual year cash inflows × PVIFA factor for 15% at 3 years

= $9,500 × 2.2832

= $21,690.40

Refer to the PVIFA table

And, the initial investment is $14,500

So, the net present value is

= $21,690.40 - $14,500

= $7,190.40