Answer:
Selection 1 has lowest NPV = $316.9
Explanation:
Rate of discount is 10% therefore PV factor for every year = [tex]\frac{1}{(1+0.1){^n}}[/tex]
Here 0.1 because interest rate is 10% n = number of year for year 1 = 1 for year 2 = 2 and so on.
Selection 1
Year Cash Flow PV Factor Value
1 $100 0.909 $90.9
2 $100 0.826 $82.6
3 $100 0.751 $75.1
4 $100 0.683 $68.3
Net Present Value = $316.9
Selection 2
In this only in 4th year the payment is received = $500 X 0.683 PV Factor
= $341.5
Selection 3
Only in year 1 $350 is received = $350 X 0.909 = $318.15
Selection 4
Year Cash Flow PV Factor Value
1 $50 0.909 $45.45
2 $50 0.826 $41.3
3 $50 0.751 $37.55
4 $375 0.683 $256.125
Net Present Value = $380.425
Selection 1 has lowest NPV = $316.9
