A. If an investor is offered an opportunity to acquire an existing hotel for $10

Question

A. If an investor is offered an opportunity to acquire an existing hotel for $10 millions and he calculates its future value to be $15 million in 10 years and its present value to be $9 million, he would likely do what :

Please explain your answer.

B. If an investor is offered an opportunity to invest $500,000 in a new restaurant and he calculates the present value of this investment to be $400,000 using his standard discount rate of 15%, the IRR on this potential investment would be :

Please explain your answer.

Explanation / Answer

a. he may consider the discounting factor and he may thinks if the factor value decreses then he may get positive NPV or equal value to his investment.

2. his IRR will be 500,000/400000= 1.25

to calculate IRR we need the life span of the investment and cash inflows. but in this problem you havent mentioned.

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