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2. Assume you have only $23,000 to invest and must choose between the two investments below. Analyze each using the below three methods and a
2. Assume you have only $23,000 to invest and must choose between the two investments below. Analyze each using the below three methods and a 9 percent opportunity cost for capital (discount rate). Which investment would you select? Why? Investment A ($) Investment B ($) Initial cost 23,000 23,000 Net cash revenues: Year 1 6,000 5,000 Year 2 6,000 5,000 Year 3 6.000 5,000 Year 4 6,000 5,000 Year 5 6,000 5,000 Terminal value (year 5) 0 7,000 Payback method: Net present value: Internal rate of return: Why would capital budgeting be useful in analyzing an investment of establishing an orchard where the trees would not become productive until 6 years after planting? (2)
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