Answer to Question #199947 in Economics for Nabeel

Question

1.     Mrs Alis is an intelligent business woman. She makes her investments after a very thoughtful process. In January 2018 , her manager has shown her some projects with the following details

Option A

Investment into a towel business that initially cost $200,000 and then will generate cash inflow of $24000 per year for the next 10 years

Option B

Investment into a detergent business that initially cost $190,000 and then will generate cash inflow of $20,000 for each of next 12 years.

 

The rate of return associated with both the investments is 12%.

 

a.      Calculate net present value (NPV) and internal rate of return (IRR) of both the investments.

b.     Comment on which investment Mrs Alis should pick on the basis NPV and IRR.

Answer 1

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