Question
Question 3 John has come to you, as his financial advisor, in regard to three investments he is considering investing in. Johns required rate of
Question 3
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 |
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?
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Real Estate Finance and Investments
Authors: William Brueggeman, Jeffrey Fisher
14th edition
73377333, 73377339, 978-0073377339
