Question

Project X has cash flows of $8,500, $8,000, $7,500, and $7,000 for Years 1 to 4, respectively. Project Y has cash flows of $7,000, $7,500, $8,000, and $8,500 for Years 1 to 4, respectively. Which one of the following statements is true concerning these two projects given a positive discount rate? (No calculations needed) Multiple Choice Both projects have the same future value at the end of Year 4. Both projects have the same value at Time 0. Both projects are ordinary annuities. Project Y has a higher present value than Project X. Project X has both a higher present and a higher future value than Project Y.

Answer 1

Answer:

Project X has both a higher present and a higher future value than Project Y.

Explanation:

Present value analysis:

Because, Project X first and second payment are greater than Project Y it does a greater amortization on the principal than Project Y, thus The Present value is greater than Y

Future value analysis

Because, Project X first and second deposit are greater than Project Y it generates more compound interest over the subsequent years. Providing, a higher future value.