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A company has two business opportunities. Option 1 results in costs of 2 Mio. and in the first six years it generates immediate cash flows
A company has two business opportunities. Option 1 results in costs of 2 Mio. and in the first six years it generates immediate cash flows of 450,000 per year. Additionally, after eight years a final cash flow of 600,000 occurs. Option 2 results in costs of 2.2 Mio. and in the first four years does not yield any cash flows. Starting after five years it results in cash flows of 60,000 per year for an infinite period of time. Which of the two options, if any, should be realized if the underlying interest rate is i = 2%.
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