Question
Kate Snead has been offered four investment opportunities, all equally priced at $45,000. Because the opportunities differ in risk, Kate's required returns (i.e., applicable discount
Kate Snead has been offered four investment opportunities, all equally priced at $45,000. Because the opportunities differ in risk, Kate's required returns (i.e., applicable discount rates) are not the same for each opportunity. The cash flows and required returns for each opportunity are summarized below.
Opportunity | Cash Flows | Required Return | ||||
A | $8,500 at the end of 5 years | 13% | ||||
B | End of Year | Amount | 14% | |||
1 | $10,000 | |||||
2 | 13,000 | |||||
3 | 19,000 | |||||
4 | 11,000 | |||||
5 | 12,000 | |||||
6 | 10,000 | |||||
C | $5,500 at the end of each year for the next 30 years. | 9% | ||||
D | $7,000 at the beginning of each year for the next 20 years. | 18% |
Find the present value of each of the four investment opportunities. Round your answer to two decimal places. Investment A: $ Investment B: $ Investment C: $ Investment D: $
Which, if any, opportunities are acceptable?
Which opportunity should Kate take?
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