Fanning Company has a choice of two investment alternatives. The present value of cash inflows and outflows for the first alternative is $150,000 and $110,000, respectively. The present value of cash inflows and outflows for the second alternative is $325,000 and $275,000, respectively. Required a. Calculate the net present value of each investment opportunity. Note: Negative amounts should be indicated by a minus sign. b. Calculate the present value index for each investment opportunity. Note: Round "PVI" to 2 decimal places. c. Indicate which investment will produce the higher rate of return. a. Alternative 1 (NPV) a. Alternative 2 (NPV) b. Alternative 1 (PVI) b. Alternative 2 (PVI) c. The investment that will produce the higher rate of return is

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Fanning Company has a choice of two investment alternatives. The present value of cash inflows and outflows for the first alternative
is $150,000 and $110,000, respectively. The present value of cash inflows and outflows for the second alternative is $325,000 and
$275,000, respectively.
Required
a. Calculate the net present value of each investment opportunity.
Note: Negative amounts should be indicated by a minus sign.
b. Calculate the present value index for each investment opportunity.
Note: Round "PVI" to 2 decimal places.
c. Indicate which investment will produce the higher rate of return.
a. Alternative 1 (NPV)
a. Alternative 2 (NPV)
b. Alternative 1 (PVI)
b. Alternative 2 (PVI)
c. The investment that will produce the higher rate of return is
Transcribed Image Text:Fanning Company has a choice of two investment alternatives. The present value of cash inflows and outflows for the first alternative is $150,000 and $110,000, respectively. The present value of cash inflows and outflows for the second alternative is $325,000 and $275,000, respectively. Required a. Calculate the net present value of each investment opportunity. Note: Negative amounts should be indicated by a minus sign. b. Calculate the present value index for each investment opportunity. Note: Round "PVI" to 2 decimal places. c. Indicate which investment will produce the higher rate of return. a. Alternative 1 (NPV) a. Alternative 2 (NPV) b. Alternative 1 (PVI) b. Alternative 2 (PVI) c. The investment that will produce the higher rate of return is
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