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 require an initial investment of $14,600 and will produce cash flows as follows:
End of Year Investment
A B
1 $9,400 $0
2 9,400 0
3 9,400 28,200
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