A Company Has Identified the Following Investments as Looking Promising

question 111

Multiple Choice

A company has identified the following investments as looking promising.Each requires an initial investment of $1.2 million.Which is the best investment?

• A)a perpetuity that generates a cash flow at the end of year 1 of $100,000,has a growth rate of 1.25%,and a cost of capital of 10%
• B)a perpetuity that generates a cash flow at the end of year 1 of $800,000,has a growth rate of 2.25%,and a cost of capital of 12%
• C)an investment that generates a cash flow of $400,000 at the end of each of the next five years,when the cost of capital is 6%
• D)an investment that generates a cash flow of $200,000 at the end of each of the next ten years,when the cost of capital is 6%
• E)an investment that generates a cash flow of $200,000 at the end of each of the next ten years,when the cost of capital is 2%

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Definitions:

Profits

The financial surplus remaining after all expenses have been deducted from total revenue, indicative of the financial health and success of a business.

McWorld

McWorld is a term coined by Benjamin Barber to describe the global homogenization of culture, values, and economic interests propelled by capitalism and technological advancements.

Jihad

In Islam, a term that broadly refers to the spiritual struggle against sin. It can also denote a physical struggle or fight against the enemies of Islam, though interpretations vary widely.

Benjamin Barber

A political theorist known for his work on democracy and capitalism, including the influential book "Jihad vs. McWorld" that examines the conflict between tribalism and globalism.