Question
You are considering investing in one of the two companies (you will buy only one, not both). The Company 1 you can buy for $6,250
You are considering investing in one of the two companies (you will buy only one, not both). The Company 1 you can buy for $6,250 today; you will receive first payment of $1,000 one year from now; you are concerned that the company is in a decaying industry and you expect profits to decline 1% per year. The Company 2 is in a modern industry, you expect profits of $1,200 one year from now, the profits should grow 5% per year; to buy the second company today you need to invest $15,000 today. In terms of growing your wealth (rate of return), which is a better investment (Company 1 or 2)? Assume that both companies will provide cash flows forever.
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