A company with a MARR = 5% is considering the two options shown. OPTION 1 OPTION 2 1st Cost Uniform Annual Benefits Life $750,000 $130,000 8 years $540,000 $95,000 8 years The Internal Rate of Return for OPTION 2 is: a. between 7% and 8% b. between 8% and 9% c. between 9% and 10% d. between 10% and 12%

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Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.