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    Choosing a project - NPV

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    ob Davies must decide whether to invest $100,000 in his own business or in another local business. Both investment projects have an expected life of five years. The cash flow of each is as follows:

    Year

    Davies

    Other

    1

    $20,000

    $10,000

    2

    30,000

    10,000

    3

    40,000

    30,000

    4

    10,000

    40,000

    5

    5,000

    50,000

    Suppose the risk of the projects is the same and is accounted for by a risk premium of 6 percent per year. Would either investment make sense? Which would be better? I need references please.

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    Solution Summary

    ob Davies must decide whether to invest $100,000 in his own business or in another local business. Both investment projects have an expected life of five years. The cash flow of each is as follows:
    Year
    Davies
    Other
    1
    $20,000
    $10,000
    2
    30,000
    10,000
    3
    40,000
    30,000
    4
    10,000
    40,000
    5
    5,000
    50,000
    Suppose the risk of the projects is the same and is accounted for by a risk premium of 6 percent per year. Would either investment make sense? Which would be better? I need references please.

    $2.19

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