The table below shows the payments at the end of each year from three different physical assets.
TABLE 15-1
-Refer to Table 15-1.A,B,and C represent possible purchases of physical capital,each offering a stream of payments as indicated in the table.There are no payments beyond Year 3.The interest rates in each year are also specified in the table.Which asset is the most valuable to a firm contemplating them at the beginning of Year 1?

Question

The table below shows the payments at the end of each year from three different physical assets.
  TABLE 15-1
-Refer to Table 15-1.A,B,and C represent possible purchases of physical capital,each offering a stream of payments as indicated in the table.There are no payments beyond Year 3.The interest rates in each year are also specified in the table.Which asset is the most valuable to a firm contemplating them at the beginning of Year 1?

Quizplus · Accepted Answer

The present value of each asset can be calculated using the formula: PV = C1/(1+r1) + C2/(1+r2)^2 + C3/(1+r3)^3
Using this formula, we find that the present value of asset A is $470.92, the present value of asset B is $456.19, and the present value of asset C is $454.34. Therefore, asset A is the most valuable to the firm.

The Table Below Shows the Payments at the End of Each