You are going to choose between two investments. Both cost $50,000, but investment A pays $25,000 a year for 3 years while investmentB pays $20,000 a year for 4 years. If your required return is 12%, which should you choose?A because it pays back sooner.○ A because its IRR exceeds 12%.OB because its IRR exceeds 12%.○ A because it has a higher IRR.B because it has a higher NPV.

To solve this problem, we need to calculate the present value of the cash flows for each investment…

Answered: You are going to choose between two…

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

Problem 1PS

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Similar questions

Your brother wants to borrow $10,750 from you. He has offered to pay you back $12,250 in a year. If the cost of capital of this investment opportunity is 11%, what is its NPV? Should you undertake the investment opportunity? Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged. If the cost of capital of this investment opportunity is 11%, the NPV of the investment is $ (Round to the nearest cent.)
Assume that at the beginning of the year, you purchase an investment for $6,300 that pays $130 annual income. Also assume the investment's value has increased to $6,900 by the end of the year. a. What is the rate of return for this investment? Note: Input the amount as a positive value. Enter your answer as a percent rounded to 2 decimal places. Rate of return % b. Is the rate of return a positive or a negative number? Positive Negative
You plan to invest $9.9 into an investment that you hope will earn a return of 12.01%. You will withdraw your money in 5 years. How much will you withdraw? Answer:
You have the opportunity to make an investment that costs $1.000,000. If you make this investment now, you will receive $250,000 one year from today, $200,000, $150,000 and 400,000 two and three years from today, respectively. The appropriate discount rate for this investment is 11 percent. .a. Should you make the investment?
You have an investment opportunity that promises to pay you $18,000 in four years. You could earn a 5% annual return investing elsewhere. What is the maximum amount you would be willing to invest in this opportunity? Note: Use tables, Excel, or a financial calculator. Round your final answer to nearest whole dollar amount. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)
Assume you are told that by investing $100,000 now, you will receive $10,000 per year starting in year 5 and continuing forever. If you accept the offer, the rate of return on the investment is:a. 4% per yearb. between 6% and 7% per year c. between 7% and 10% per yeard. over 12% per year
You are trying to decide how much to save for retirement. Assume you plan to save $4,000 per year with the first investment made one year from now. You think you can earn 10.5% per year on your investments and you plan to retire in 36 years, immediately after making your last $4,000 investment. a. How much will you have in your retirement account on the day you retire? b. If, instead of investing $4,000 per year, you wanted to make one lump-sum investment today for your retirement that will result in the same retirement saving, how much would that lump sum need to be? c. If you hope to live for 28 years in retirement, how much can you withdraw every year in retirement (starting one year after retirement) so that you will just exhaust your savings with the 28th withdrawal (assume your savings will continue to earn 10.5% in retirement)? d. If, instead, you decide to withdraw $270,000 per year in retirement (again with the first withdrawal one year after retiring), how many years will it…
You have an investment opportunity that requires an initial investment of $5,000 today and will pay $6,000 in one year. What is the IRR of this opportunity?
Suppose you have $10,000 and a choice of two alternatives: A) put the money in a savings account that pays 4% per year, and B) buy a stock that has a 50% chance to gain 15% in value after 1 year, and a 50% chance to lose 5%. What will be the expected return for either alternative, and which one would you choose? Why?

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