Question 1

We want to acquire a new equipment for a price of $150,000. Considering that the banks are currently offering an average annual rate of 5%, calculate each of the following investment options and explain which is more attractive in order to be able to obtain the $150,000 that we need, based on those calculations. Please show your workings for each option.

a) Investing 90,000 in a product that offers an annual interest of 5% compounded quarterly for 10 years to produce $150,000.

b) Investing 90,000 in a product that offers annual 6,5% simple interest for 10 years.

c) Investing 90,000 in a project that will produce annual cashflows of $15,100 for 10 years