Use the following investment scenarios and corresponding cash flows to answer the questions
Investment 1 has the following profile:
Cost of Capital = 9.5%
Initial investment = $950,000
Year 1 cash flow = $300,000 Year 2 cash flow = $200,000 Year 3 cash flow = $200,000 Year 4 cash flow = $600,000 Year 5 cash flow = $500,000
Investment 2 has the following profile:
Cost of Capital = 9.5%
Initial Investment = $950,000
Year 1 cash flow = $400,000 Year 2 cash flow = $400,000 Year 3 cash flow = $500,000 Year 4 cash flow = $150,000 Year 5 cash flow = $150,000
What is the payback period for Investments 1 and 2?
What is the discounted payback period for Investments 1 and 2?
What is the net present value of Investments 1 and 2?
What is the profitability index of investments 1 and 2?
What is the internal rate of return for investments 1 and 2?
Which investment would you choose and why?
Would you choose a different option if the cost of capital was 18%?