Question
ABC is considering two investment alternatives. Alternative A requires an initial investment of $10,000; it will yield incomes of $3000, $3500, $4000, and $4500 over
ABC is considering two investment alternatives. Alternative A requires an initial investment of $10,000; it will yield incomes of $3000, $3500, $4000, and $4500 over its 4-year life. Alternative B requires an initial investment of $12,000; it is anticipated that the revenue received each year will increase at a rate of 10%/year (each years revenue is 10% higher than that of the preceding year). Based on an interest rate of 12% compounded annually, what must be the revenue at the first year for B in order for alternatives A and B to be equivalent? (Draw the cash flow profiles)
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