Assume that two investments have a three-year life and generate the cash flows shown below.Which of the two would you prefer?
A)Investment A, since it has the most even cash flows
B)Investment B, since it gives you the largest cash flows in earlier years
C)Neither, since they both have equal lives
D)Both investments are equally attractive

Question

Assume that two investments have a three-year life and generate the cash flows shown below.Which of the two would you prefer? 
A)Investment A, since it has the most even cash flows 
B)Investment B, since it gives you the largest cash flows in earlier years 
C)Neither, since they both have equal lives 
D)Both investments are equally attractive

Quizplus · Accepted Answer

Investment B has a higher total value of cash flows ($120,000 vs $114,000 for Investment A) and generates larger cash flows in earlier years, which may be more desirable due to the time value of money. Additionally, the uneven cash flows of Investment A may result in more risk and uncertainty compared to the more consistent cash flows of Investment B.

Assume That Two Investments Have a Three-Year Life and Generate