Question
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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