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Dmitrij [34]
3 years ago
12

Rolla Company has a choice of two investment alternatives. The present value of cash inflows and outflows for the first alternat

ive is $125,000 and $100,000, respectively. The present value of cash inflows and outflows for the second alternative is $300,000 and $262,500, respectively.
Required

Calculate the net present value of each investment opportunity

Calculate the present value index for each investment opportunity. (Round "PVI" to 2 decimal places.)

Indicate which investment will produce the higher rate of return.
Business
1 answer:
zysi [14]3 years ago
8 0

Answer:

Alternative A will produce the best return.

It has a better present value index which means, the investment yield a better rate.

Explanation:

ALTERNATIVE (a)

125,000 - 100,000 = <em>25,000 NPV</em>

ALTERNATIVE (b)

300,000 - 262,500 = <em>37,500 NPV</em>

\frac{CashFlows \: PV}{initial \: investment} = PVI

ALTERNATIVE (a)

125.000/100,000 = <em>1.25</em>

ALTERNATIVE (b)

300,000/262,500 =<em> 1.1429</em>

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