Question

Your Boss is offering you a choice between a $10,000 Bonus  now or a 5% raise for 3 years.

You are earning $100,000 / year.

The discount rate is 20%.

Which choice gives you a higher PV Bonus or Raise?

You have an opportunity to buy a business, for $75,000.

The business has an annual profit of $5,000.

You know you can increase the profit 50%, after you buy the business.

The business will operate for 12 years after the purchase.

Your personal cost of capital is 4%

You have a payback requirement of 10 years or less.

You require the present value of the annual profits to exceed your initial investment.

Do you buy the business, assuming you can improve profits 50%?

Answer 1

Solutions are as follows:

Note: $5000*150%=$7500 is the improved profit.