An Investor Has the Opportunity to Invest in Four New

question 117

Multiple Choice

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: 9.1%
• B) Initial investment: $90,000; Cash flow in year 1: $10,000; Growth Rate: 1.50%; Cost of Capital: 9.3%
• 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: 7.2%

Distinguish between assets, liabilities, equity, revenues, and expenses.

Comprehend the sequence and preparation of financial statements.

Calculate net income or net loss correctly.

Recognize the significance and placement of withdrawals and expenses in financial reporting.

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Definitions:

Union Labor

Union labor consists of workers who are members of a labor union, which negotiates wages, work conditions, and benefits on their behalf.

Average Wages

The mean income calculated by dividing the total wage pool by the number of wage earners, used as an indicator of economic health and labor market conditions.

Profit Levels

Indicates the ranges of profit a business can generate, reflecting its financial health and operational success.

National Income

The total value of all goods and services produced by a country's economy over a specific period, typically analyzed to assess economic health.