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:

Literal Analogy

A comparison between two similar things.

Figurative Analogy

A comparison between two essentially unlike things or events that nevertheless share some feature.

Central Idea

A one-sentence summary of your presentation; sometimes called a thesis sentence.

Topical Description

The detailed depiction or discussion focused on a particular topic or subject.