MANAGERIAL ACCOUNTING W/ACCESS
5th Edition
ISBN: 9781266245619
Author: Noreen
Publisher: MCG
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Chapter 7A, Problem 7A.1E
To determine
Concept Introduction:
The
the present value of cash inflows for each investment.
Expert Solution & Answer
Answer to Problem 7A.1E
The present value of cash inflows for each investment is as follows:
Investment A =$ 18,519
Investment B =$ 21,832
Explanation of Solution
The present value of cash inflows for each investment is calculated as follows:
| Investment A | Investment B | |||||
| PVF (18%) | PV | Cash inflow | PV | |||
| A | B | C=A*B | D | E=A*D | ||
| Year 1 | 0.84746 | $ 3,000 | $ 2,542 | $ 12,000 | $ 10,169 | |
| Year 2 | 0.71818 | $ 6,000 | $ 4,309 | $ 9,000 | $ 6,464 | |
| Year 3 | 0.60863 | $ 9,000 | $ 5,478 | $ 6,000 | $ 3,652 | |
| Year 4 | 0.51579 | $ 12,000 | $ 6,189 | $ 3,000 | $ 1,547 | |
| Present value of cash inflow | $ 18,519 | $ 21,832 | ||||
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