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

Required

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

[12 marks]

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

[3 marks]