Question

You are a financial adviser at ‘MY Financial Consultants’ (MYFC). Jeremy Seymour has come to you for advice after inheriting $1.6 million from his late grandfather.

Mr Seymour is looking to invest 30% of his inheritance.

Mr Seymour would like to know which of the following opportunities will present him with the greatest return.

• Option 1: Purchase a well-known café with an annual turnover of $420,000 and a net profit ratio of 22%

• Option 2: Purchase an online cosmetic retail store with an annual turnover of $880,000 and a net profit ratio of 10%

To assist Mr Seymour to make the decision, he would like to know what his investment would be worth in 5 years from today.

Answer 1

	Jeremy's total inheritance amount	$ 1,600,000
	Investment amount =30% of inheritance =	$     480,000
	Option 1.
a	Annual Turnover	$     420,000
b	Net Profit Amt @22%=	$       92,400
c	Investment =	$     480,000
d	Return on Investment =b/c=	19.25%
	Option 2.
a	Annual Turnover	$     880,000
b	Net Profit Amt @10%=	$       88,000
c	Investment =	$     480,000
d	Return on Investment =b/c=	18.33%

	So Option 1 has a better ROI
	Comparing Investment Value after 5 years	Option 1	Option2.
a	Investment Amount	$     480,000	$     480,000
b	Annual Net Profit Amt	$       92,400	$       88,000
c	Net cumulative Profit in 5 years =5*b=	$     462,000	$     440,000
d	Invetment Value after 5 years=a+c=	$     942,000	$     920,000
	So Option 1 is preferable as it will have higher
	value after 5 years.