A company has identified the following investments as looking promising. Each requires an initial investment of $1.2 million. Which is the best investment?
A) a perpetuity that generates a cash flow at the end of year 1 of $100,000, has a growth rate of 1.25%, and a cost of capital of 11.0%
B) a perpetuity that generates a cash flow at the end of year 1 of $800,000, has a growth rate of 2.25%, and a cost of capital of 11.8%
C) an investment that generates a cash flow of $400,000 at the end of each of the next five years, when the cost of capital is 6.1%
D) an investment that generates a cash flow of $200,000 at the end of each of the next ten years, when the cost of capital is 6.1%
Answer: B
You might also like to view...
________ tend to be straightforward outlines of benefits and positioning points that the advertiser wants to stress
A) Promotion mix plans B) Message strategy statements C) Creative concept strategies D) Advertainment statements E) Branded entertainment plans
It is legally necessary to notify the obligor of any assignment of rights to a third party
Indicate whether the statement is true or false
Your author describes an aspect of the 2007-2009 financial crisis concerning commercial paper and a financial instrument he refers to as an ABCP. Define an ABCP and the role it played in the financial crisis
What will be an ideal response?
Lingering apparent authority results from: A) the failure to give notice of termination
B) ratification. C) the lack of capacity on the part of the principal. D) None of the above