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Your client has identified a number of investment possibilities indicated below: The first investment option, which costs $50,000 is an annuity and...
1. Your client has identified a number of investment possibilities indicated below:
The first investment option, which costs $50,000 is an annuity and pays $8,000 each year for 15 years.
The second investment option pays $6,000 a year (in perpetuity) from year 4 onwards, and costs $25,000.
The third investment costs $150,000 and pays the following cash flows in years 2 to 7:
Yr 2: $30,000, Yr 3: $35,000, Yr 4: $40,000, Yr 5: $45,000, Yr 6: $50,000 and Yr 7: $55,000.
Identify, for your client, which of these investments are good investments, assuming that the rate of return on investment is 14% p.a. for your client.
