Question: Davies must decide whether to invest $100,000 in his own business or in another local business. Both investment projects have an expected life of five years. The cash flow of each is as follows:
Year
Davies
Other
1
$20,000
$10,000
2
30,000
10,000
3
40,000
30,000
4
10,000
40,000
5
5,000
50,000
Suppose the risk of the projects is the same and is accounted for by a risk premium of 6 percent per year. Would either investment make sense? Which would be better? Need references please.