A Company Has Identified the Following Investments as Looking Promising

question 80

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 11.0%
• 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 11.8%
• 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 6.1%
• 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 6.1%

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