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Explain how net present value calculation

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Brad and Nerida are considering two alternative investments. Option 1 requires an outlay of $10 000 and after 2 years is expected to bring a cash flow of $1500 p.a for the next 3 years. Then the investment would be terminated and they would get their $10 000 back. Option 2 requires an outlay of $15 000 and is expected to bring a cash flow of $1200 for each of the next 5 years. They would expect to sell the investment for $17 500. Explain how net present value calculation would help them to decide on the best investment choice.

Reference no: EM131628210

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