8. The following investment opportunities are available to an investment center

Question

8. The following investment opportunities are available to an investment center manager: Initial Investment Annual Project Earnings $ 110,000 50,000 35,000 10,000 S 600,000 200,000 400,000 700,000 What is the ROI for A, B, C&D;? If you are making a 10% return on investment, which project(s) would you choose? which project(s) would you choose if you cost of capital was 20%? What is the residual income for projects A, B, C & D? If you had to take two out of the four, which ones would you choose? a. b. d. e.

Explanation / Answer

Part A

Part B

Prject A and B because they have greater than 10% ROI

Part C

Project B because it has more than 20% of ROI to cover COC

Part D

Part E

A and B becasue they have +ve residual income

Project II Annual Earnings ROI A 600000 110000 18.33% B 200000 50000 25.00% C 400000 35000 8.75% D 700000 10000 1.43%

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