(Answered) Cost of capital 95initial investment 950000year 1 cash

Finance

Cost of Capital = 9.5%

Initial investment = $950,000

Year 1 cash flow = $300,000 Year 2 cash flow = $200,000 Year 3 cash flow = $200,000 Year 4 cash flow = $600,000 Year 5 cash flow = $500,000

Investment 2 has the following profile:

Cost of Capital = 9.5%

Initial Investment = $950,000

Year 1 cash flow = $400,000 Year 2 cash flow = $400,000 Year 3 cash flow = $500,000 Year 4 cash flow = $150,000 Year 5 cash flow = $150,000

1. What is the payback period for Investments 1 and 2?

2. What is the net present value of Investments 1 and 2?

3. What is the internal rate of return for investments 1 and 2?

4. Which investment would you choose and why?

Would you choose a different option if the cost of capital was 18%?

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