Question
Assume that you are an investor, and the management of Bitter Inc. and Sour Inc. has approached you asking for an investment of $480,000 and
Assume that you are an investor, and the management of Bitter Inc. and Sour Inc. has approached you asking for an investment of $480,000 and $530,000 respectively. The management has offered the following expected cash flows in the future: The management of Bitter Inc. has contemplated that it would need an additional support of $45,000 at the end of 8th year, and Sour Inc. would ask for an additional investment of $38,000 at the end of 10th year. Assume your expected return on investment to be 6%. Analyze both the investment proposals using the following criteria: 1. Net present value 2. Payback period 3. Discounted payback period
year | Bitter Inc. | Sour Inc. |
1 | 17400 | - |
2 | 24800 | - |
3 | 51300 | 19000 |
4 | 73600 | 61000 |
5 | 82000 | 78000 |
6 | 99000 | 108000 |
7 | 112000 | 141000 |
8 | 119000 | 172000 |
9 | 126900 | 185000 |
10 | 101000 | 199000 |
11 | 99500 | 103000 |
12 | 76900 | 45000 |
13 | 62700 | 33000 |
14 | 44000 | 22000 |
15 | 35000 | 11000 |
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