An investor is trying to decide whether to invest the $30,000 he received from the sale of his boat in the stock market or in a small fast-food restaurant with three other partners. If he buys the stock, he will receive 3500 shares, which pay dividends of $1 per share each quarter. He expects the stock to appreciate to $40,000 six years from now.
If he invests in the restaurant, he will have to put up another $10,000 one year from now, but starting two years from now, his share of the profits will be $9,000 per year for 5 years, after which time he will receive $35,000 from the sale of the business. Using Present Worth analysis and an interest rate of 12%/yr compounded quarterly, determine which investment he should select.
Draw Cash Flow Diagrams for each alternative.