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August 4, 2015

Homework Help: Finance

Posted by Taylor on Thursday, October 25, 2012 at 1:04pm.

A company has identified the following investments as looking promising. Each requires an initial investment of $1.2 million. Which is the best investment?Question 4 options:
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 10%
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 12%
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%
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%

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