Question

As a financial manager you must choose between three alternative investments. Each investment is expected to provide cash inflows for the next four years as described below. Based on the goal of shareholder wealth maximization, you would ________. Year Investment A Investment B Investment C 1 $25,000 $17,500 $10,000 2 $20,000 $17,500 $15,000 3 $15,000 $17,500 $20,000 4 $10,000 $17,500 $25,000 Total $70,000 $70,000 $70,000

Answer 1

Full question attached

Answer:

B. Choose investment A

Explanation:

Looking at the investment cash flows for the four years, investment A maximises the shareholders wealth mostly because it covers cost of investment quicker than other investments B, C and D. It begins with the highest cash flow return, for first and second year therefore pay back period is lower with investment A. Also net present value is higher.