The cash flows for four investments have been identified as follows: Based on the above information, and with an interest rate of 5%, which is the best investment?
A)Investment A
B)Investment B
C)Investment C
D)Investment D

Question

The cash flows for four investments have been identified as follows:  Based on the above information, and with an interest rate of 5%, which is the best investment?
A)Investment A 
B)Investment B 
C)Investment C 
D)Investment D

Quizplus · Accepted Answer

Investment B provides the highest net present value (NPV) of $788.54, which is calculated by discounting each cash flow at a 5% interest rate and subtracting them from the initial investment. The other three investments have negative NPVs, meaning that their cash flows do not exceed the initial investment when discounted at 5%. Therefore, Investment B is the best choice.

The Cash Flows for Four Investments Have Been Identified as Follows