Read the following context;

We had been saving every month for the last years an amount that represents a total sum of $70,000, and now we are planning to do some improvements in our business. In order to improve our operations and increase our revenues, we have some projects and investment alternatives that we are considering, having in mind the goal of expanding our business and opening a new store with an expected cost of $140,000.

Question

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 $140,000 that we need for our new store, based on those calculations. Please show your workings for each option.

1. Investing all our savings in a project that will produce annual cashflows of $22,500 for 10 years.

2. Investing all our savings in a product that offers annual 5% simple interest for 10 years.

3. Investing part of our savings in a product that offers an annual interest of 5% compounded semiannually for 10 years to produce $140,000.