Investment options A and B are equally risky and have identical initial costs.Each investment will produce cash inflows of $20,000.Option A will pay $8,000 the first year followed by four annual payments of $3,000 each.Option B will pay five annual payments,starting in 1 year,of $4,000 each.Which one of the following statements is correct given these two investment options? Assume a positive rate of return.

Question

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Option A provides a higher initial payment of $8,000 in the first year, followed by four payments of $3,000 each, totaling $20,000. Option B provides five equal annual payments of $4,000, also totaling $20,000. However, because of the time value of money, receiving larger amounts earlier, as in Option A, is generally more valuable, making Option A the better investment assuming the rate of return is positive and other conditions are equal.

Investment Options a and B Are Equally Risky and Have