The business is considering a project and is not sure which of these two projects to embark on. The initial investment is £15,000, and the interest rate is 2%, estimating that the investment will provide the following cashflows for 5 years: Project A (£) Project B (£) CF1 2,000 5000 CF2 8000 6000 CF3 9000 1000 CF4 3000 4000 CF5 5000 2400 You must explain to the Board the viability of this investment using the net present value (NPV) criterion. Based on the above information, answer the following question • What is the NPV of each investment? • Is the investment viable? If yes, why? Simple Interest and Compound Interest 1. One of the directors suggested that the company invests £4200 in a Platinum Saver Account which pays 6.3% interest per annum. How much simple interest will the company receive after 4 years? 2. He also suggested investing £1200 for four years, and wondered how much that investment will be worth if they paid 12% compound interest per annum?
The business is considering a project and is not sure which of these two projects to embark on. The initial investment is £15,000, and the interest rate is 2%, estimating that the investment will provide the following cashflows for 5 years:
|
|
Project A (£) |
Project B (£) |
|
CF1 |
2,000 |
5000 |
|
CF2 |
8000 |
6000 |
|
CF3 |
9000 |
1000 |
|
CF4 |
3000 |
4000 |
|
CF5 |
5000 |
2400 |
You must explain to the Board the viability of this investment using the
• What is the NPV of each investment?
• Is the investment viable? If yes, why?
Simple Interest and
1. One of the directors suggested that the company invests £4200 in a Platinum Saver Account which pays 6.3% interest per annum. How much simple interest will the company receive after 4 years?
2. He also suggested investing £1200 for four years, and wondered how much that investment will be worth if they paid 12% compound interest per annum?
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