Investment a costs $10,000 today and pays back $11,500 two years from now. investment b costs $8,000 today and pays back $4,500 each year for two years. if an interest rate of 5% is used, which alternative is superior

Investment  A

Explanation:

We need to find the NPV of two investments

NPV (A) = -10000 + 11500(P/F, 5%, 2)

= -10000 + 11500*0.90703

= 431

NPV (B) = -8000 + 4500(P/A, 5%, 2)

= -8000 + 4500*1.8594

= 367

Since NPV (A) > NPV (B) we select alternative A.

the investment was $14,174.196

explanation:

a lump sum means that the father of the example made one deposit and leave it be.

we need to know the value of a capital that generated at 4.05% per year during 28 years the sum of $48,613.24

now clearing the formula to solve for capital we got:

and we reach the answer investment = $14,174.20