Reference no: EM132975520
a.Assuming that investments A and B are equally risky and using the 4% discount rate, apply the present value technique to assess the acceptability of each investment and to determine the preferred investment. Explain your findings.
Plan B has a Npv greater than plan A so plan b is the preferred choice.
b. Recognizing that investment B is more risky than investment A, reassess the two alternatives, adding the 4% risk premium to the 4% discount rate for investment A and therefore applying a 8% discount rate to investment B. Compare your findings relative to acceptability and preference to those found for question a.
c. From your findings in questions a and b, indicate whether the IRR for investment A is above or below 4% and whether that for investment B is above or below 8%. Explain.
Investment A is above 4% and investment B is below 8%.
d. Use the present value technique to estimate the IRR on each investment. Compare your findings and contrast them with your response to question c.
e. From the information given, which, if either, of the two investments would you recommend that Dave make? Explain your answer. f. Indicate to Dave how much money the extra $50 will have grown to by the end of 2026, assuming he makes no withdrawals from the savings account
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