Suppose You Are Offered Two Investment Alternatives

question 61

Essay

Suppose you are offered two investment alternatives. If you choose Alternative 1, you will have to make an immediate outlay of $26 000. In return, you will receive $1500 at the end of every three months for the next ten years. If you choose Alternative 2, you will have to make an outlay of $14 000 now and $8000 in two years. In return, you will receive $60 000 ten years from now. Interest is 8.22% compounded semi-annually. Compute the net present value for each alternative and determine which investment should be accepted or rejected according to the net present value criterion.

---

Definitions:

Marginal Cost

The cost incurred by producing one additional unit of a product or service.

4th Worker

The concept or individual representing the fourth hire in a sequence, often associated with incremental contribution or changes in team dynamics.

Short Run

A period of time in economics during which at least one input, like plant size, is fixed and cannot be changed.

Production Costs

The total expenses incurred in the process of producing or manufacturing goods or services.