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QUESTION 1 John has come to you, as his financial advisor, in regard to three investments he is considering investing in. Johns required rate of

QUESTION 1

John has come to you, as his financial advisor, in regard to three investments he is considering investing in. Johns required rate of return for such investments is 10%. The cost of each investment and the income streams generated are summarised below:

Investment 1

Investment 2

Investment 3

Initial Investment

$18,000

$20,000

$21,000

Income Stream

Income Stream

Income Stream

End of Year

1

$6,000

$8,000

$7,500

2

$6,000

$6,000

$7,500

3

$8,000

$4,000

$7,500

4

$7,000

$5,000

$7,500

Required

Part a) What is the net present value of each of the investments John is considering investing in?

[3 marks]

Part b) Which (if any) of the three investments would you recommend John invest in? Why? ( 2 MARKS

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