An investor has the opportunity to invest in four new retail stores. The amount that can be invested in each store, along with the expected cash flow at the end of the first year, the growth rate of the concern, and the cost of capital is shown for each case. It is assumed each investment will operate in perpetuity after the initial investment. Which investment should the investor choose? ... O A. Initial investment: $100,000; Cash flow in year 1: $12,000; Growth Rate: 1.25%; Cost of Capital: 9% O B. Initial investment: $90,000; Cash flow in year 1: $10,000; Growth Rate: 1.50%; Cost of Capital: 9.2% O C. Initial investment: $80,000; Cash flow in year 1: $8000; Growth Rate: 1.75%; Cost of Capital: 8.1% O D. Initial investment: $60,000; Cash flow in year 1: $6000; Growth Rate: 2.50%; Cost of Capital: 7.2%

An investor has the opportunity to invest in four new retail stores. The amount that can be invested in each store, along with the expected cash flow at the end of the first year, the growth rate of the concern, and the cost of capital is shown for each case. It is assumed each investment will operate in perpetuity after the initial investment. Which investment should the investor choose? ... O A. Initial investment: $100,000; Cash flow in year 1: $12,000; Growth Rate: 1.25%; Cost of Capital: 9% O B. Initial investment: $90,000; Cash flow in year 1: $10,000; Growth Rate: 1.50%; Cost of Capital: 9.2% O C. Initial investment: $80,000; Cash flow in year 1: $8000; Growth Rate: 1.75%; Cost of Capital: 8.1% O D. Initial investment: $60,000; Cash flow in year 1: $6000; Growth Rate: 2.50%; Cost of Capital: 7.2%

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 8TP: Fenton, Inc., has established a new strategic plan that calls for new capital investment. The...

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Question

An investor has the opportunity to invest in four new retail stores. The amount that can be
invested in each store, along with the expected cash flow at the end of the first year, the
growth rate of the concern, and the cost of capital is shown for each case. It is assumed
each investment will operate in perpetuity after the initial investment. Which investment
should the investor choose?
O A. Initial investment: $100,000; Cash flow in year 1: $12,000; Growth Rate: 1.25%;
Cost of Capital: 9%
O B. Initial investment: $90,000; Cash flow in year 1: $10,000; Growth Rate: 1.50%;
Cost of Capital: 9.2%
O C. Initial investment: $80,000; Cash flow in year 1: $8000; Growth Rate: 1.75%;
Cost of Capital: 8.1%
O D. Initial investment: $60,000; Cash flow in year 1: $6000; Growth Rate: 2.50%;
Cost of Capital: 7.2%

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