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    Coffee Shop Investment

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    2. Suppose you are aware of the following investment opportunity: You could open a coffee shop around the corner from your home for $25,000. IF business is strong, you could net $15,000 in after tax cash flows each year over the next five years.

    a. if you knew for certain the business would be a success, would this be a risky investment?

    b. Now assume this a risky venture and that there is a 50% chance it is a success and a 50% chance you go bankrupt within 2 years. You decide to go ahead and invest. If the business subsequently goes bankrupt, did you make the wrong decisions based on the information you had at the time? Why or why not?

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    Solution Preview

    a. If you knew for certain the business would be a success, this wouldn't be a risky investment because you would basically be guaranteed to triple your money from the $25,000 originally invested to $75,000 ...

    Solution Summary

    Almost 160 words examine the risk of opening a coffee shop.

    $2.19

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