Jiminez Company has two investment opportunities. Both investments cost $5,000 and will provide the following net cash flows: Year Investment A Investment B 1 $ 3,000 $ 3,000 2 3,000 4,000 3 3,000 2,000 4 3,000 1,000 What is the total present value of Investment A's cash flows assuming an 8% minimum rate of return

Question

Business

Kaylin Pace

5 November, 05:41

Jiminez Company has two investment opportunities. Both investments cost $5,000 and will provide the following net cash flows: Year Investment A Investment B 1 $ 3,000 $ 3,000 2 3,000 4,000 3 3,000 2,000 4 3,000 1,000 What is the total present value of Investment A's cash flows assuming an 8% minimum rate of return

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Answers (1)

Know the Answer?

Samuel Ruiz · Answer 1

The correct answer is $4,936.38.

Explanation:

According to the scenario, the computation of the given data are as follows:

Investment cost $5,000

Time period = 4 years

Rate of return = 8%

We can calculate the total present value of investment A's by using following formula:

Total PV of Investment A's = ($3,000 * PVA 8% : 4 years) - Cost of investment

(by refer to PVA table)

= ($3,000 * 3.3121) - $5,000

= $9,936.38 - $5,000

= $4,936.38