Harrison, Inc. is considering two investment opportunities. Each investment costs $7,000 and will providethe same total future cash inflows. The schedule of estimated cash receipts for each investment follows(assume cash is received at year-end):16.17.b.C.Year 1Year 2Year 3Year 4Totald.Which investment should Harrison choose assuming all other variables for the two investments arethe same?a.Investment 1$3,0002,5002,0001,500$9,000Investment 2$1,0002,0003,0003,000$9,000Harrison should be indifferent between the two investments because they provide the sametotal cash inflows.Harrison should choose Investment I because of the time value of money.Harrison should be indifferent between the two investments because the initial cash outflow isthe same.Harrison should choose Investment II because it generates larger cash inflows at the end ofthe investment's useful life.C. $926d. $7,227Assuming an 8% minimum rate of return, what is the net present value of Investment 2 (round tothe nearest whole dollar)?a. ($7,000)b.$227

The question has asked to find out the correct option from the given options, and, compute the net present value of investment 2. Time value of money: The time value of money refers to the concept that a sum of money is worth more than the amount of sum of money will be in the future due to the earning potential. Under the capital budgeting decision, the payback period indicates the time period to recover the actual initial investment. Investment I has a better payback period than investment II. According to the time value of money, the sum of money of investment I after discounting at a certain percentage will be more than investment II. 16) Harrison should choose the investment assuming the other variables are the same: Because of the time value of money. Therefore, the correct option is (b) i.e. He should choose investment I because of the time value of money. 17) Computation of the net present value of the investment II: Year Cash flows $ Discounting factor @ 8% Amount $ 1 1000 0.926 926 2 2000 0.857 1714 3 3000 0.794 2382 4 3000 0.735 2205 Total present value 7227 Less: The cost of the investment (7000) Net present value 227 Therefore, the NPV of the investment II is $ 227.