Problem
Mr. Friendly, a friend of yours, is asked to invest in the following project: Installation and operation of a facility with a life span of five years. The initial investment is $90M. It will have a net profit of $25M/Yr the first two years and $30M/ in years 3,4, and 5. At the end of year 5, it has to be disposed of at a cost of $10M with no resale value.
a. If he has the money and his opportunity cost of money is 10% (i=10%), would you advise him to invest or not? Yes? No? Why? Explain.
b. He can only put down $33M, and his bank will extend him a loan for the rest of the initial investment to be used on this project at 15% in a way that he has to pay it back in equal installments at the end of each of the five years with no collateral. Should he take the loan and invest? Yes? No? Why? Explain.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.