Alfarsi Industries uses the net present value method to make investment decisions and requires a 15% annual return on all investments. The company is considering two different investments. Each requires an initial investment of $15,000 and will produce cash flows as follows:
End of Year Investment
A B
1 $8,000 $0
2 8,000 0
3 8,000 24,000
The present value factors of $1 each year at 15% are:
1 0.8696
2 0.7561
3 0.6575
The present value of an annuity of $1 for 3 years at 15% is 2.2832
Required:
The net present value of Investment B is:
a.) $780.
b.) $(15,780).
c.) $9,000.
d.) $39,797.