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Frank, a retired politician, is thinking about investing 900,000 of his savings to start a new business. He is considering two alternative business opportunities, a
Frank, a retired politician, is thinking about investing 900,000 of his savings to start a new business. He is considering two alternative business opportunities, a political consultancy agency and a barbecue ribs restaurant, but can only accept one investment project. The projected cash flows of the two investments are shown below. Frank asks for your help and advice in reaching a decision on which investment project to accept. He tells you he requires a 8% rate of return on his investment Consultancy Ribs agency restaurant Cash flows 000 000 Initial investment (900) (900) Cash inflows year 1 350 450 Cash inflows year 2 400 425 Cash inflows year 3 450 230 Cash inflows year 4 500 300 Cash inflows year 5 200 230 Cash inflow from sale of the investment at the end of year 5 150 80 Assume the initial investment arises at the start of the first year of the project. The depreciation method is straight line over the project's life. E. Recommend with explanations which project you would advise Frank to invest in. Your answer should consider the advantages and disadvantage of each of the project appraisal methods. 16 marlen
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