In: Finance
1. You are thinking about investing $4,615 in your friend's landscaping business. Even though you know the investment is risky and you can't be sure, you expect your investment to be worth $5,640 next year. You notice that the rate for one-year Treasury bills is 1%. However, you feel that other investments of equal risk to your friend's landscape business offer an expected return of 9% for the year. What should you do? The present value of the return is $5174.31 (Round to the nearest cent.)
You should A. invest in the business/B. not invest in the business. (Select from the drop-down menu.)
2.
You have invested in a business that proudly reports that it is profitable. Your investment of $4,700 has produced a profit of $293. The managers think that if you leave your $4,700 invested with them, they should be able to generate $293 per year inprofits for you in perpetuity. Evaluating other investment opportunities, you note that other long-term investments of similar risk offer an expected return of 8%. Should you remain invested in this firm? The expected return of your investment is 6.2%. (Round to one decimal place.)
(Select from the drop-down menus.)
If projects that are similar in horizon and risk are offering an expected return of 8%, then this business▼A. is not /B. is earning your opportunity cost of capital, and you should
▼A. invest elsewhere/B. remain invested
.