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You have won the Powerball lottery and received $100,000. You have determined that there are two different investment opportunities available. Option 1: The money can
You have won the Powerball lottery and received $100,000. You have determined that there are two different investment opportunities available. Option 1: The money can be placed on deposit at the bank. The interest rate you can earn is 5% compounded annually. Option 2: You can invest in a business opportunity named Thanos Blockchain. The annual profit of the project and the cash flows you receive for the following seven years are shown on the table below (note: both profits and cash flows are earned or received at the end of each year): Years 1 2 - 4 Annual Profits ($) $15,000 $15,000 each year $15,000 each year $15,000 Cash Flows ($) $20,000 $18,500 each year $14,500 each year $ 16,000 5-6 7 Required: (a) Work out the present value of the investment at the bank and the present value of the business opportunity for Thanos Blockchain using a discount rate of 5% p.a. (Note: You can ignore the net present values analysis (NPV) and focusing on calculating and comparing the present values for two options. Round your answer to the nearest whole number). (b) (0) Based on your present value analysis, which investment represents a better opportunity? Explain why. (ii) Is it realistic to use 5% as the discount rate to calculate the present value for Thanos Blockchain opportunity? Why or why not? (2 marks - 100 words maximum) (iii) Discuss two other qualitative factors you would consider before making your final decision. (c) Your friend Thor approaches you and say the total cash flows you can receive from investing in Thanos Blockchain is $120,500. How does Thor get this figure? Is it correct or not? Discuss
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