Alison has $5,000 to invest and is trying to decide between two investment opportunities. One investment offers her future cash flows of $2,000 for each of the next five years. Another investment offers her future cash flows of $5,000 in the fifth year and $7,500 in the sixth year. Alison will need to calculate the _____ of the future cash flows to compare these two investments.
A) common payout value
B) average annual payout
C) fixed annuity value
D) net present value

Question

Quizplus · Accepted Answer

Alison will need to calculate the net present value (NPV) of the future cash flows to compare these two investments. This will allow her to determine which investment will provide a higher return on her investment, considering the time value of money.

Alison Has $5,000 to Invest and Is Trying to Decide