Question

An investor is thinking about investing in one of two different projects. The first opportunity will pay GhC 800 in four years and the second investment will yield GhC 1000 in 5 years’ time. Which investment opportunity should the investor venture in if the discount rate is 8% per annum? Explain your answer.

Answer #1

An investor is hesitating between two projects. The first will
yield steady returns of X every 6 months for 10 years. The second
will return 1000 per month for 5 years, then will yield 500 per
month in perpetuity. If the effective annual rate is 10%, for what
X would the investor be indifferent between the two projects ?

An investor is hesitating between two projects. The first will
yield steady returns of X every 6 months for 10 years. The second
will return 1000 per month for 5 years, then will yield 500 per
month in perpetuity. If the effective annual rate is 10%, for what
X would the investor be indifferent between the two projects ?

As an investor you are investigating two different investment
opportunities (projects) at time zero. Starting from year 1,
Project A offers to pay you $500 every year for 10 years, whereas
Project B offers to pay you $500 for the first year and a yearly
increased amount for the next 8 years after year 1. Project B’s
payment in year t+1 will be 3% higher than its payment in year t.
In year 0, Project A costs $2200 while Project...

As an investor you are investigating two different investment
opportunities (projects) at time zero. Starting from year 1,
Project A offers to pay you $500 every year for 10 years, whereas
Project B offers to pay you $550 for the first year and a yearly
increased amount for the next 8 years after year 1. Project B’s
payment in year t+1 will be 1% higher than its payment in year t.
In year 0, Project A costs $2200 while Project...

You are considering investing in two different instruments. The
first instrument will pay nothing for the first three years, but
then it will pay $40,000 per year for five years after that. The
second instrument will pay $25,000 for seven years and $40,000 in
the eighth year. All payments are made at year-end. If your rate of
return on these investments is 6 percent annually, what should you
be willing to pay for each instrument today?

Blue Bird, Inc. situated on south Blue Hill Road is thinking
about investing in two projects with the following cash flows. Year
Project X Project Y 0 ($100,000) ($100,000) 1 40,000 50,000 2
40.000 0 3 40,000 0 4 40,000 0 5 40,000 250,000 Blue Bird uses the
payback period method of capital budgeting and accepts only
projects with payback periods of 3 years or less. a. If the
projects are presented as standalone opportunities which one(s)
would Blue Bird...

Eddie is thinking about investing in stocks of IDK Inc. IDK just
announced its earnings per share
of $6 today, but the company currently pays no dividends. The
earnings are expected to grow at
12% per year for the following three years. After that, the
earnings will grow at 8% per year for
five years and then slow down to 2% forever. IDK plans to pay
its first annual dividend at the end
of Year 4 by distributing 50% of...

The Simpson Corporation is thinking about investing in
two new options, each option has a different level of risk that is
associated with it. Option (A) is a new product and it is investing
in a new market. Option (B) is an expansion of a well-established
existing market. The risk-free rate is 2% and the expected rate of
inflation is 3%. For a low risk investment Simpson Corporation
expects 2%, but for a high risk investment Simpson Corporation
expects 5%....

You are thinking about investing in Starbucks.
In March 2020, the firm paid their 2019 annual dividend of
$17.50 per common share. The fiscal year of Starbucks runs April –
March.
Due to economic conditions, Wall street and the rest of
financial market expect the firm to pay no dividends for next two
years. Afterwards, the firm is expected to have fantastic growth
for the next 6 years resulting in following (abnormal) dividends
for those 6 years: $9.00, $14.00, $23.00,...

Your thinking about investing $100,000 into one of two stocks.
Both stocks are in the same industry sector and are priced at the
same market capitalization rate of 12%. Stock A is expected to pay
out a $1.25 annual dividend and that dividend is not expected to
grow. Stock B is expected to pay out an annual dividend of $2.45.
Stock B retains some of its earnings and reinvests at a good
ROE.
Assuming that the two stocks are correctly...

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