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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.

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Radhika Lakshmi, MPhil
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  • MCom, Annamalai University
  • IATA, International Air Transport Association
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