Use the Information for the Question(s)below

question 68

Multiple Choice

Use the information for the question(s) below.

-An investor has the opportunity to invest in four new retail stores. The amount that can be invested in each store, along with the expected cash flow at the end of the first year, the growth rate of the concern, and the cost of capital is shown for each case. It is assumed each investment will operate in perpetuity after the initial investment. Which investment should the investor choose?

• A)Initial investment: $100 000; Cash flow in year 1: $12 000; Growth Rate: 1.25%; Cost of Capital: 9.0%
• B)Initial investment: $90 000; Cash flow in year 1: $10 000; Growth Rate: 1.50%; Cost of Capital: 9.0%
• C)Initial investment: $80 000; Cash flow in year 1: $8 000; Growth Rate: 1.75%; Cost of Capital: 8.0%
• D)Initial investment: $60 000; Cash flow in year 1: $6 000; Growth Rate: 2.50%; Cost of Capital: 7.5%

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Definitions:

Obedience

The act of following orders or commands from authorities or rules, often considered a social virtue or necessity for societal organization and function.

Compliance

The act of conforming to or following rules, standards, or laws.

Direct Commands

Instructions or orders given clearly and authoritatively, requiring immediate compliance or action.

Conformity

The act of matching attitudes, beliefs, and behaviors to group norms, pressures, or expectations.