Investment proposal

Investment proposal



Investment proposal

Question1

Proposal 1

Pay Back Period = 6.1 years

NPV = -23273£

IRR = 3%

Proposal 2

Pay Back Period = 4.5 years

NPV = -49808 £

IRR = 2.9%

Proposal 3

Pay Back Period = 2.1 years

NPV = -48337£

IRR = 2%

Proposal 5

Pay Back Period= 4.3 years

NPV = -34645£

IRR = 5%

Question2

Proposal 2

If you were to receive $66,000.00 every time period (e.g. every month, six months, or every year) for the next 5 periods, and you continually reinvested this amount at a rate of 10%, the total series of cash flows at the end of the annuity's life would be worth $250,191.93 today.

What does this mean to you? This calculator helps you determine what a series of reinvested cash flows is worth today. So, if, for example, you buy a fixed-income investment and you know exactly how much you will be receiving every time period for a set number of time periods, you can find out exactly how much your future accumulated cash flows are worth today.

Question3

Two fundamental challenges are involved in financing technology projects; adverse selection and moral hazard. Risk can be shifted to another person who is willing to bear it-the speculator. Another way of dealing with risk is by pooling it using insurance. The idea is simple. If one out of 1000 homes will burn each year, and if each person contributes to a general fund 1/1000 of the value of his home, the fund will have enough (ignoring administrative expenses and the question of whether expensive homes are more or less likely to burn than cheap homes) to reimburse those whose homes burn down.

 The size of the insurance industry indicates that people are eager to pay to avoid risk. They pay and get nothing if fortune smiles on them, whereas if misfortune strikes, they break even because the insurance should just pay back the value lost in the misfortune.

 Because insurance changes the costs of misfortune, and because people choices depend on costs and benefits, insurance should change people's behavior. They should make less effort to avoid misfortune, and this change in behavior is called moral hazard. For example, if an accident costs a person $1000 but insurance pays $900, the insured person has less incentive to avoid the accident. If the accident costs the person $1000 but pays $2000, the person not only has no incentive to avoid the accident but may have an incentive to seek it out.Sometimes moral hazard is dramatic. Fire insurance encourages arson, automobile insurance encourages accidents, and disability insurance encourages dismemberment.The problem of moral hazard also affects government programs that insure people against misfortune. A variety of programs help people who suffer the misfortune of poverty. Aid to dependent children helps people who suffer the misfortune of having children to raise that they cannot financially support. Unemployment compensation pays people who suffer the misfortune of losing their jobs. Food stamps and public housing help the poor. Yet all these programs also suffer from problems of moral hazard. They increase children born out of wedlock, unemployment, and ...