Your financial advisor warns you (investor) that below hotel investment proposal is NOT a good investment....
Your financial advisor warns you (investor) that below hotel investment proposal is NOT a good investment.
* $1,000,000 investment now
* a rate of 5% for 10 years
* returning a lump sum total repayment of $1,500,000 at the end of the 10-year period
Do you agree with the financial advisor and decide not to invest? Or you don't agree with the financial advisor and decided to invest?
Homework Answers
rate positively ..
| We have to compute the NPV of the investment . | ||||
| Computation of NPV | ||||
| Present value of cash outflow = | 1000000 | |||
| Present value of cash inflow = | 920,869.88 | |||
| 1,500,000/(1+5%)^10 | ||||
| NPV = PV of cash inflow - PV of cash outflow= | (79,130.12) | |||
| Since, NPV is negative therefore we should not invest. Answer is DON’T INVEST |
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