Bob Davies must decide whether to invest $100,000 in his own business or in another local business. Both investment projects have an expected life of five years. The cash flow of each is as follows:

Suppose the risk of the projects is the same and is accounted for by a risk premium of 6 percent per year. Would either investment make sense? Which would bebetter?

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Year Davies $20,000 30.000 40,000 10,000 5,000 Other $10,000 10,000 30,000 40,000 50,000 4