Q1) You are thinking of adding new conference room to the hotel. If you don't invest in this new conference room, your cash flows will be as follows:
| Years |
0 |
1 |
2 |
3 |
4 |
5 |
| Cash flows without investment |
0 |
120 |
125 |
127 |
129 |
132 |
On the other hand, if you make a decision to invest in conference room, your cash flows, including investment cost and extra revenues, will be as follows:
| Years |
0 |
1 |
2 |
3 |
4 |
5 |
| Cash flows with investment |
-60 |
135 |
138 |
150 |
150 |
148 |
If your cost of capital is 18%, must you make investment? What would be maximum cost of capital you could afford to make investment?