Which investment would you recommend and why Which investment would you recommen
ID: 1105811 • Letter: W
Question
Which investment would you recommend and why Which investment would you recommend and why Which investment would you recommend and why 1.) Consider the following investment opportunities for a large manufacturing company. The discount rate is 5%. Investment A: costs $150 000 and pledges to pay a return of $175 000 after six years. Investment B: costs $180 000 and pledges to pay a return of $201 000 after seven years. Investment C: costs $165 000 and pledges to pay a return of $170 000 after two years. Which investment woul you recommend and why? ‘i--harma anen" nt agreement, the .Explanation / Answer
Investment A net present value=-150000+175000/1.05^6=-19412.31
Investment B net present value=-180000+201000/1.05^7=-37153.05
Investment C net present value=-165000+170000/1.05^2=-10804.99
From above Investment C has highest NPV or lowest NPV loss, so you can choose investment C if you have to choose one (however at loss you should not select any)
the above is the answer
see there is some lack of clarity in question because return of money can be the straight that amount or it can be investment plus profit
using another approach
Investment A net present value=-150000+(175000+150000)/1.05^6=92520.00
Investment B net present value=-180000+(201000+180000)/1.05^7=90769.59
Investment C net present value=-165000+(170000+165000)/1.05^2=138854.88
the answer is same choose investment c as it has highesr NPV.
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