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Question 2 (9 marks) You are considering investing in a Pop Up Restaurant business that is expected to have the following cash flows in years
Question 2 (9 marks) You are considering investing in a Pop Up Restaurant business that is expected to have the following cash flows in years 1 6 after which the business will be closed. Year 1 2 3 Cash Flow 3100 4200 3300 3500 4700 73000 6 You have to make a decision of whether to invest in the business by the end of the day. Unfortunately, you have all of your money tied up in an illiquid portfolio of bonds which have substantial transaction costs involved in selling quickly. The cost of the investment opportunity is R35963.02 and the expected return on your bond portfolio is 19.6%. Assuming that the bond portfolio and the project have identical risk, what is the maximum amount of transaction costs you would be willing to incur in selling part of your bond portfolio to invest in this project? A) R67.57 B) R50.68 C) R59.8 D) R75 E) R87.17
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