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: $$\begin{array} { | l | c | c | }
\hline & \text { Investment I } & \text { Investment II } \
\hline \text { Period 1 } & \$ 1,000 & \$ 1,000 \
\hline \text { Period 2 } & 1,000 & 2,000 \
\hline \text { Period 3 } & 2,000 & 3,000 \
\hline \text { Period 4 } & \underline { 4,000 } & \underline { 2,000 } \
\hline \text { Total } & \underline { \$ 8,000 } & \underline { \$ 8,000 } \
\hline
\end{array}$$ What is the net present value of Investment II assuming an 8% minimum rate of return? (PV of $1 and 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: $$\begin{array} { | l | c | c | } 
\hline & \text { Investment I } & \text { Investment II } \
\hline \text { Period 1 } & \$ 1,000 & \$ 1,000 \
\hline \text { Period 2 } & 1,000 & 2,000 \
\hline \text { Period 3 } & 2,000 & 3,000 \
\hline \text { Period 4 } & \underline { 4,000 } & \underline { 2,000 } \
\hline \text { Total } & \underline { \$ 8,000 } & \underline { \$ 8,000 } \
\hline
\end{array}$$ What is the net present value of Investment II assuming an 8% minimum rate of return? (PV of $1 and 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), we need to find the present value (PV) of each cash inflow and then subtract the initial investment. Using the PV of $1 table, we can find the PV factor for each year's cash inflow at an 8% minimum rate of return. Using the PVA of $1 table, we can find the PV factor for the initial investment of $5,500.

For Investment II:
PV of Year 1 Cash Inflow = $1,100 x 0.926 = $1,019.60
PV of Year 2 Cash Inflow = $1,100 x 0.857 = $942.70
PV of Year 3 Cash Inflow = $1,100 x 0.794 = $873.40
Total PV of Cash Inflows = $2,835.70
PV of Initial Investment = $5,500 x 0.794 = $4,367
NPV = Total PV of Cash Inflows - PV of Initial Investment
NPV = $2,835.70 - $4,367 = -$1,531.30

For Investment I:
PV of Year 1 Cash Inflow = $600 x 0.926 = $555.60
PV of Year 2 Cash Inflow = $2,800 x 0.857 = $2,400.20
PV of Year 3 Cash Inflow = $4,000 x 0.794 = $3,176
Total PV of Cash Inflows = $6,131.80
PV of Initial Investment = $5,500 x 0.794 = $4,367
NPV = Total PV of Cash Inflows - PV of Initial Investment
NPV = $6,131.80 - $4,367 = $1,764.80

Therefore, Investment I has a positive NPV of $1,764.80, while Investment II has a negative NPV of $1,531.30. Therefore, Investment I is the best choice.

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