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FIN622 - GDB#1 (Solution)
FIN622 - GDB#1 (Solution)
Option A :-
Net Present Value = P.V of Inflows – P.V of Outflows
Net Present Value = [300000(3.16987)] - 200000
Net Present Value = 316987 - 200000
Net Present Value = 116987
Option B :-
Net Present Value = [200000(1.105)-3 + [200000(1.10)-4] – 200000
Net Present Value = [150263 + 136603] – 200000
Net Present Value = 86866
Option C :-
Net Present Value = [200000(1.10)-1] + [200000(1.10)-4] – 200000
Net Present Value = [181818 + 136603] – 200000
Net Present Value = 318420 – 200000
Net Present Value = 118420
Requirements:
1) I would like to recommend the investor to use “Net Present Value” i.e. NPV analysis for
evaluation of the given options.
2) Option C is selected because it is quite suitable for the investor. As, its NPV is higher
than the other two options i.e. its present value of inflows is greater than its investment’s
input.
3) Yeah, different income stream really matters when investing the money. Because, when
we analyze different options, we calculate present value of cash inflows in early years
greater inflows and lower inflows in end years will be suitable for investors.