Alfarsi Industries uses the net present value method to make investment decisions and requires a 15% annual return on all investments. The company is considering two different investments. Each require an initial investment of $15,000 and will produce cash flows as follows: End ofYearInvestment?AB1$8,000 $0 2 8,000 0 3 8,000 24,000 The present value factors of $1 each year at 15% are: 10.869620.756130.6575 The present value of an annuity of $1 for 3 years at 15% is 2.2832Which investment should Alfarsi choose?
A. Both investments are acceptable, but B should be selected because it has the greater net present value.
B. Both investments are acceptable, but A should be selected because it has the greater net present value.
C. Only Investment A is acceptable.
D. Neither machine is acceptable.
E. Only Investment B is acceptable.
Answer: B
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