A company has a policy of requiring a rate of return on investment of 16%. Two investment alternatives are available but the company may choose only one. Alternative 1 offers a return of $30,000 at the end of year three, $60,000 at the end of year seven and $50,000 after ten years. Alternative 2 will return the company $1,200 at the end of each month for the next ten years. Compute the present value of each alternative and determine the preferred alternative according to the discounted cash flow criterion. The present value of Alternative 1 is $. (Round to the nearest dollar as needed. Round all intermediate values to six decimal places as needed.) The present value of Alternative 2 is $. (Round to the nearest dollar as needed. Round all intermediate values to six decimal places as needed.)
A company has a policy of requiring a rate of return on investment of 16%. Two investment alternatives are available but the company may choose only one. Alternative 1 offers a return of $30,000 at the end of year three, $60,000 at the end of year seven and $50,000 after ten years. Alternative 2 will return the company $1,200 at the end of each month for the next ten years. Compute the present value of each alternative and determine the preferred alternative according to the discounted cash flow criterion. The present value of Alternative 1 is $. (Round to the nearest dollar as needed. Round all intermediate values to six decimal places as needed.) The present value of Alternative 2 is $. (Round to the nearest dollar as needed. Round all intermediate values to six decimal places as needed.)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 13E: Buena Vision Clinic is considering an investment that requires an outlay of 600,000 and promises a...
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