Question
You have a firm that starts out with $70,000 in cash in the bank. You have three investment opportunities: (1) You can invest $40,000 today
You have a firm that starts out with $70,000 in cash in the bank. You have three investment opportunities: (1) You can invest $40,000 today for a payoff of $49,000 next year; (2) you can invest $20,000 today for a payoff of $27,000 next year; (3) you can invest $10,000 today for a payoff of $15,000 next year. You can undertake any or all of these investment opportunities, but you may only invest in each one once. You do not have to invest, as you may hold on to some or all of your money and leave it in the bank. The discount rate is 25%. Which investments, if any, do you undertake and why?
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