Morrisey Company has two investment opportunities. Both investments cost $5,500 and will provide the same total future cash inflows. The cash receipt schedule for each investment is given below: $\begin{array}{ccc}
&\text { Investment I}&\text { Investment II }\
\text { Period 1 } & \$ 1,000 & \$ 1,000 \
\text { Period } 2 & 1,000 & 2,000\
\text { Period } 3 & 2,000 & 3,000\
\text { Period } 4 &\underline{ 4,000} & \underline{2,000} \
\text { Total } &\underline{ \$ 8,000 }& \underline{\$ 8,000}
\end{array}$ What is the net present value of Investment II assuming an 8% minimum rate of return? (PV of $1and PVA of $1) (Use appropriate factor(s) from the tables provided. Do not round your intermediate calculations. Round your answer to the nearest whole dollar.)

Question

Morrisey Company has two investment opportunities. Both investments cost $5,500 and will provide the same total future cash inflows. The cash receipt schedule for each investment is given below: $\begin{array}{ccc}
&\text { Investment I}&\text {  Investment II }\
\text { Period 1 } & \$ 1,000 & \$ 1,000 \
\text { Period } 2 & 1,000 & 2,000\
\text { Period } 3 & 2,000 & 3,000\
\text { Period } 4 &\underline{ 4,000} & \underline{2,000} \
 \text { Total } &\underline{ \$ 8,000 }& \underline{\$ 8,000}
\end{array}$ What is the net present value of Investment II assuming an 8% minimum rate of return? (PV of $1and PVA of $1) (Use appropriate factor(s) from the tables provided. Do not round your intermediate calculations. Round your answer to the nearest whole dollar.)

Quizplus · Accepted Answer

To calculate the net present value (NPV) of Investment II, we need to find the present value (PV) of each cash inflow and sum them up, then subtract the initial investment cost of $5,500. The discount rate is 8%.

PV of Year 1 cash inflow = $1,400 / (1 + 0.08)^1 = $1,296.30
PV of Year 2 cash inflow = $3,800 / (1 + 0.08)^2 = $3,293.72
PV of Year 3 cash inflow = $2,200 / (1 + 0.08)^3 = $1,672.51

NPV of Investment II = ($1,296.30 + $3,293.72 + $1,672.51) - $5,500 = $992.53

Therefore, Investment II has a positive NPV of $992.53, which means it is worth investing in. Investment I is not the best choice because its NPV is negative ($-624.72).

Morrisey Company Has Two Investment Opportunities What Is the Net Present Value of Investment II Assuming