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Pontification Ltd has a number of investment options however your client has limited these investments to only the following two options:
Pontification Ltd has a number of investment options however your client has limited these investments to only the following two options: The first investment costs $100,000 and pays the following cash flows in years 3 to 8: Yr 3: $25,000, Yr 4: $30,000, Yr 5: $20,000, Yr 6: $10,000, Yr 7: $50,000 and Yr 8: $80,000. The second investment option costs $250,000 and is a perpetuity which pays $25,000 a year with the 1st cash flow occurring at the end of year 3.Your client indicates that he requires a rate of return of 10% p.a. which can be applied to both of these investments. Identify for him whether these investments are good (or not).
