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Durango Co. must decide between two investment opportunities. Information about the two opportunities is listed below: Opportunity 1 - Present value of cash inflows is $123,000 and the present value of cash outflows is $112,323. Opportunity 2 - Present value of cash inflows is $14,232 and the present value of cash outflows is $7,232. Which investment yields a higher rate of return?

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Answer:

Opportunity 2

Explanation:

Calculation to determine Which investment yields a higher rate of return

Based on the information given OPPORTUNITY 2 investment yields a HIGHER rate of return reason because the PRESENT VALUE INDEX is 1.968 calculated as :

Rate of return=$14,232/$7,232

Rate of return= 1.968

Which is HIGHER than the present value index of both opportunity 1 and opportunity 3.

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