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Mr . John Backster, a retired executive, desires to invest a portion of his assets in rental property. He has narrowed his choices to two
Mr John Backster, a retired executive, desires to invest a portion of his assets in rental property. He has narrowed his choices to two apartment complexes, Windy Acres and Hillcrest Apartments. The anticipated annual cash inflows from each are as follows:
Windy Acres Hillcrest Apartments
Yearly Aftertax
Cash Inflow Probability Yearly Aftertax
Cash Inflow Probability
Mr Backster is likely to hold the apartment complex of his choice for about years and will use this period for decisionmaking purposes. Either apartment can be purchased for $ Mr Backster uses a riskadjusted discount rate approach when evaluating investments. His scale is related to the coefficient of variation for other types of investments, he also considers other measures
Coefficient of Variation Discount Rate
cost of capital
Over not considered
a Compute the riskadjusted net present value for Windy Acres and Hillcrest Apartments. Round PV Factor" to decimal places. Do not round intermediate calculations. Round the final answers to nearest whole dollar.
Net present value
Windy Acres $
Hillcrest Apartments $
b Which investment should Mr Backster accept if the two investments are mutually exclusive?
multiple choice
Hillcrest
Windy Acres
Both
None
b Which investment should Mr Backster accept If the investments are not mutually exclusive and no capital rationing is involved?
multiple choice
Windy Acres
Hillcrest Apartments
Both
None
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