Planning for the future

You are making decisions that will have a long-term impact on our festival/events company.

Our company must choose between three investment options. Carefully review the three options below and make a recommendation taking into consideration the possible source(s) of financing, cost of capital, potential risk, and the time value of money.

	Option 1 Additional Upgrades & Renovations to New Building	Option 2 Acquire Complimentary Business & IP	Option 3 Capital Asset Purchase
Description	Invest in replacement and upscale furnishings to improve space, increasing event sizes and prices	Acquire an innovative ticketing software and e-commerce business with all related intellectual property	Purchase a new outdoor venue to host large festivals and events
Initial Investment	$150,000	$210,000	$330,000
Net Cash Inflow Year 1	33,333	8,235	23,843
2	41,667	16,471	30,030
3	45,833	16,471	38,280
4	45,833	16,471	38,280
5	45,833	24,706	38,280
6		37,059	50,655
7		37,059	50,655
8		37,059	50,655
9		37,059	50,655
10		41,176	58,905
11		41,176	58,905
12		41,176	58,905
13		41,176	58,905
14		41,176	58,905
15		41,176	58,905
16		41,176	58,905
17		41,176	58,905
18		41,176	58,905
19		41,176	58,905
20		41,176	58,905

Please answer the following (best completed in associated MS Excel template):

1)

a) Recommend the most attractive option if the cost of capital is 11% per year. Use a NPV approach to compare.

b) Would your answer change if we require a minimum return of 12% per year?

c) Finally, where would we get the funding for your choice? What do you believe our strategy should be?

3. Where would we get the funding for your choice? What do you believe our strategy should be? (2 marks)