Linda Jones is deciding between two investment projects. Choice 1 Linda can invest into a young...

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Finance

Linda Jones is deciding between two investment projects.
Choice 1 Linda can invest into a young biotech firm. She expectsthat she will need to pay this firm $35,000 at the end of each yearfor the next two years. After that, she expects to receive backfrom the firm $90,000 at the end of each year for 18 years.
Choice 2 Linda can invest $200,000 today into an AI firm. Sheexpects to be paid $42,000 at the end of the year, and expects cashflows from the AI firm to increase by 5% every year, paid at theend of each year in perpetuity
a. “Draw” timelines (tables), showing cash flows of eachinvestment.
b. Suppose Linda’s discount rate is 12%. Which project shouldshe choose?
c. At which discount rate would Linda be indifferent between hertwo choices?
PLEASE HELP!! PLEASE SHOW WORK

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3.8 Ratings (362 Votes)

Solution ABNPV of Project 1 NPV of Project 2 Present See Answer

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Linda Jones is deciding between two investment projects.Choice 1 Linda can invest into a young biotech firm. She expectsthat she will need to pay this firm $35,000 at the end of each yearfor the next two years. After that, she expects to receive backfrom the firm $90,000 at the end of each year for 18 years.Choice 2 Linda can invest $200,000 today into an AI firm. Sheexpects to be paid $42,000 at the end of the year, and expects cashflows from the AI firm to increase by 5% every year, paid at theend of each year in perpetuitya. “Draw” timelines (tables), showing cash flows of eachinvestment.b. Suppose Linda’s discount rate is 12%. Which project shouldshe choose?c. At which discount rate would Linda be indifferent between hertwo choices?PLEASE HELP!! PLEASE SHOW WORK