FIN 320: CORPORATE FINANCE -SPRING 2019

INVESTMENT DECISION CASE

(DUE BY 11:00PM ON APRIL 26TH, 2019)

Assume that you have 4 investment opportunities below. Please use the materials and knowledge gained throughout the course to choose one that benefits you the most. Please submit the work in a Word document on Moodle

(Note: please make sure to show all the details and calculations to arrive at the final answer to earn full credits)

Assuming that you have $190,000 available to invest in each option.

Investment Opportunity 1:

Assuming you have some construction background and considering to purchase the used Cat 990 Wheel Loader for investment. If you purchase and rent it out, it will produce cash inflows of $32,500, $38,470, $40,805, and $41,268 a year for the next four years, respectively (assume that the Wheel Loader will last for 4 years and will no longer work after 4 years). The discount rate is 6% and the selling price is $190,000.

Investment Opportunity 2:

Assuming that you are interested in investing in 100 in quantity in annual corporate bonds at the selling price $1,900. The bonds have 4% coupon bond rate, a face value of $1,930 and mature in 15 years.

Investment Opportunity 3:

You are thinking to invest in a stock portfolio that has $100,000 invested in Walgreens Boots Alliance Inc (WBA) stock, $60,000 in the Gap Inc (GPS) and $30,000 in American Airlines Group Inc. You expect to receive the return rates 12%, 7% and 5%, respectively.

Investment Opportunity 4

Assuming you are interested in investing in long term 20 year treasury bills that currently pay 3.37% *annually. The inflation rate is 1.9 % **(Hint: Use the Fisher Effect, and the 20 year treasury bill rate is nominal rate)