Stream of unequal cash flows

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Consider the stream of unequal cash flows from two investments in the table below. The initial outlay for both investments is $100,000.

Year Investment A Cash Flow Investment B Cash Flow

0 $(100,000) $(100,000) 

1 $20,000 $10,000 

2 $(10,000) $50,000

3 $50,000 $40,000  

4 $40,000 $(20,000) 

5 $30,000 $40,000

(a) Calculate the present value (PV) of each investment with a 5% discount rate.

(b) Assuming a 5% discount rate, which investment would you prefer? Explain your answer.

(c) In each investment, how long would it take to recover the initial outlay?

Reference no: EM131639749

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