Problem: Frank Zanca is considering three different investments that his broker has offered to him. The different cash flows are as follows:
|
End of Year
|
A
|
B
|
C
|
|
1
|
300
|
400
|
|
|
2
|
300
|
|
|
|
3
|
300
|
|
|
|
4
|
300
|
300
|
600
|
|
5
|
300
|
|
|
|
6
|
300
|
|
|
|
7
|
300
|
|
|
|
8
|
300
|
600
|
|
Because Frank has enough savings for only one investment, his broker has proposed the third alternative to be, according to his expertise, the best in town. However, Frank questions his broker and wants to eliminate the present value of each investment. Assuming a 15% discount rate, what is Frank's best alternative?