Answer:
Option 2
Option 3
Option 1
Explanation:
Present value is the sum of discounted cash flows.
Present value can be calculated using a financial calculator
Present value of option 1 = $900
For option 2 :
Cash flow in year 1 = $1200
I = 15%
Present value = $1,043.48
For option 3 :
Cash flow each year from year 1 to 4 = 0
Cash flow in year 5 = $2000
I = 15%
Present value =$ 994.35
From the above figures, option 2 has the highest present value, followed by option 3 and then option 1.
To find the PV using a financial calacutor:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. After inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.
3. Press compute
I hope my answer helps you
