Alfarsi Industries uses the net present value method to make investment decisions and requires a 15% annual return on all investments.The company is considering two different investments.Each require an initial investment of $15,000 and will produce cash flows as follows:
The present value factors of $1 each year at 15% are:

The present value of an annuity of $1 for 3 years at 15% is 2.2832
-Which investment should Alfarsi choose?
A)Only Investment A is acceptable.
B)Only Investment B is acceptable.
C)Both investments are acceptable,but A should be selected because it has the greater net present value.
D)Both investments are acceptable,but B should be selected because it has the greater net present value.
E)Neither machine is acceptable.

Question

Alfarsi Industries uses the net present value method to make investment decisions and requires a 15% annual return on all investments.The company is considering two different investments.Each require an initial investment of $15,000 and will produce cash flows as follows: 
The present value factors of $1 each year at 15% are:
 
The present value of an annuity of $1 for 3 years at 15% is 2.2832
-Which investment should Alfarsi choose?
A)Only Investment A is acceptable. 
B)Only Investment B is acceptable. 
C)Both investments are acceptable,but A should be selected because it has the greater net present value. 
D)Both investments are acceptable,but B should be selected because it has the greater net present value. 
E)Neither machine is acceptable.

Quizplus · Accepted Answer

Both investments being acceptable indicates that they meet the minimum criteria for investment, such as positive net present value (NPV) or meeting a required rate of return. Choosing Investment A over B due to its greater NPV suggests that it offers a higher return on investment, making it the more financially advantageous option.

Alfarsi Industries Uses the Net Present Value Method to Make