Two investment opportunities are open to you: Investment 1 and Investment 2. Each has an initial cost of $10,000.
Assuming that you desire a 10 percent return on your initial investment, compute the net present value of the two alternatives and evaluate their relative attractiveness:
|
Investment 1
|
Investment 2
|
|
Cash Flows
|
Year
|
Cash Flows
|
Year
|
|
$5,000
|
1
|
$8,000
|
1
|
|
6,000
|
2
|
7,000
|
2
|
|
7,000
|
3
|
6,000
|
3
|
|
8,000
|
4
|
5,000
|
4
|