Uncle Ben saved $800.000 during the 25 years that he worked for a major corporation. Now he has retired at the age of 50 and has begun to draw a comfortable pension check every month. He wants to ensure the financial security of his retirement by investing his savings wisely and is currently considering two investment opportunities. Both investments require an initial payment of $600.000. The following table presents the estimated cash inflows for the two alternatives. Year 1 Year 2 Year 3 Year 4 Opportunity # 1 $178,000 $188,000 $252,000 $324,000 Opportunity # 2 328,000 348,000 56,000 48,000 Uncle Ben decides to use his past average return on mutual fund investments as the discount rate; it is 8 percent.
Uncle Ben saved $800.000 during the 25 years that he worked for a major corporation. Now he has retired at the age of 50 and has begun to draw a comfortable pension check every month. He wants to ensure the financial security of his retirement by investing his savings wisely and is currently considering two investment opportunities. Both investments require an initial payment of $600.000. The following table presents the estimated
|
|
Year 1 |
Year 2 |
Year 3 |
Year 4 |
|
Opportunity # 1 |
$178,000 |
$188,000 |
$252,000 |
$324,000 |
|
Opportunity # 2 |
328,000 |
348,000 |
56,000 |
48,000 |
Uncle Ben decides to use his past average return on mutual fund investments as the discount rate; it is 8 percent.
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Payback Period
Modified Payback Period
Profitability Index
Accounting
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