Question
You are the sponsor of a hotel fund. Your limited partners are interested in the total return and do not care about the timing of
You are the sponsor of a hotel fund. Your limited partners are interested in the total return and do not care about the timing of cash flows. Besides, they round their estimated returns to one decimal place. For a five year investment, each LP invests $1 mi at the outset. You are considering two hotel investment alternatives. The first asset (A) will provide no cashflows, but after liquidation in the fifth year, it will generate a cashflow worth $1.52 mi for the LPs. Another asset will (B) generate 0.02 mi cash flow per year, in addition to $1.2 mi at the time of sale. Which asset will be preferred by your LPs?
A) Insufficient information
B) Both the assets are equally preferable
C). Asset A
D) Asset B
**Please show work. Thank you! :)
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