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Lara Fredericks is interested in two mutually exclusive investments. Both investments cover the same time horizon of 6 years. The cost of the first investment is $10,000; Lara expects equal and consecutive year-end payments of $3,000. The second investment promises equal and consecutive year-end payments of $3,800 with an initial outlay of $12,000 required. The current required return on the first investment is 10%, and the second investment has a required return of 12% a What is the net present value of the first investment? b What is the net present value of the second investment? c Being mutually exclusive, which investment should Lara choose? Explain. d Which investment was relatively more risky? Explain.

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Financial Management, Finance

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