Question: Which of the following would be the best investment based on present value? Assume an annual discount rate of 16%
a. An investment that pays $5,000 at the end of each year for 6 years, assuming annual compounding.
b. An investment that pays $1,225 at the end of each quarter for 6 years, assuming quarterly compounding
c. An investment that pays $1,200 at the beginning of each quarter 6 years, assuming quarterly compounding?
d. $19,000 today.
e. The answer cannot be determined from the information given.
Year Undiscounted free cash flows
0 (380,000)
1 20,000
2 30,000
3 200,000
4 175,000
5 130,000
6 145,000
Required rate of return 15%