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Montreal Comedy Clubs Limited – It has $500,000 investable fun to invest in either “BIG” or “Singa”. The firm’s cost of capital is 12% As the table below indicates, MCC should consider making the Singa investment because this will allow MCC to have more money after eighteen months. However, your manager directs you to calculate the present value of cash inflow of BIG and Singa respectively and compare on present value basis. The cost of capital is 12% per annum. Explain why on present value terms BIG may or may not be higher than Singa. BIG Investment Singa Investment Semi-annual Periods Semi-annual Dividend Income 7% Future Value Factor @ 12%/2 =6% Future Value Quarterly Periods Quarterly Dividend Future Value Factor @ 12%/4 = 3% Future Value 1 $35,000.00 1.1236 $39,326.00 1 $12,500.00 1.1593 $14,491.25 2 35,000.00 1.0600 37,100.00 2 12,500.00 1.1255 14,068.75 3 35,000.00 1.0000 35,000.00 3 12,500.00 1.0927 13,658.75 - 4 12,500.00 1.0609 13,261.25 - 5 12,500.00 1.0300 12,875.00 6 12,500.00 1.0000 12,500.00 Principal 500,000.00 1.0000 500,000.00 531,250.00 1.0000 531,250.00 Future value $611,426.00 $612,105.00

Montreal Comedy Clubs Limited – It has $500,000 investable fun to invest in either “BIG” or “Singa”. The firm’s cost of capital is 12% As the table below indicates, MCC should consider making the Singa investment because this will allow MCC to have more money after eighteen months. However, your manager directs you to calculate the present value of cash inflow of BIG and Singa respectively and compare on present value basis. The cost of capital is 12% per annum. Explain why on present value terms BIG may or may not be higher than Singa. BIG Investment Singa Investment Semi-annual Periods Semi-annual Dividend Income 7% Future Value Factor @ 12%/2 =6% Future Value Quarterly Periods Quarterly Dividend Future Value Factor @ 12%/4 = 3% Future Value 1 $35,000.00 1.1236 $39,326.00 1 $12,500.00 1.1593 $14,491.25 2 35,000.00 1.0600 37,100.00 2 12,500.00 1.1255 14,068.75 3 35,000.00 1.0000 35,000.00 3 12,500.00 1.0927 13,658.75 - 4 12,500.00 1.0609 13,261.25 - 5 12,500.00 1.0300 12,875.00 6 12,500.00 1.0000 12,500.00 Principal 500,000.00 1.0000 500,000.00 531,250.00 1.0000 531,250.00 Future value $611,426.00 $612,105.00

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Montreal Comedy Clubs Limited – It has $500,000 investable fun to invest in either “BIG” or “Singa”. The firm’s cost of capital is 12% As the table below indicates, MCC should consider making the Singa investment because this will allow MCC to have more money after eighteen months. However, your manager directs you to calculate the present value of cash inflow of BIG and Singa respectively and compare on present value basis. The cost of capital is 12% per annum. Explain why on present value terms BIG may or may not be higher than Singa. BIG Investment Singa Investment Semi-annual Periods Semi-annual Dividend Income 7% Future Value Factor @ 12%/2 =6% Future Value Quarterly Periods Quarterly Dividend Future Value Factor @ 12%/4 = 3% Future Value 1 $35,000.00 1.1236 $39,326.00 1 $12,500.00 1.1593 $14,491.25 2 35,000.00 1.0600 37,100.00 2 12,500.00 1.1255 14,068.75 3 35,000.00 1.0000 35,000.00 3 12,500.00 1.0927 13,658.75 - 4 12,500.00 1.0609 13,261.25 - 5 12,500.00 1.0300 12,875.00 6 12,500.00 1.0000 12,500.00 Principal 500,000.00 1.0000 500,000.00 531,250.00 1.0000 531,250.00 Future value $611,426.00 $612,105.00
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