ABC owns and operates a regional chain of motels in the Niagara Falls area and is looking to expand into  Brampton. He is currently in discussion with two people about buying each of their motels. After reviewing  historical financial records, ABC has come up with the following estimates of cash flows for each of these  operations:

ABC is looking at a 25-year time horizon and will use this time period for decision-making purposes. Either motel  can be acquired for $200,000. ABC uses a risk-adjusted discount rate when considering investments. The scale is  related to the coefficient of variation.

Required:

a. Compute the risk-adjusted net present value for Tee-P-Teep Motel and Dodo Motel. (Round "PV Factor" to 3  decimal places. Do not round intermediate calculations. Round the final answers to nearest whole dollar.)

b. Which investment should Mr. Johnson accept if the two investments are mutually exclusive?

c. Which investment should Mr. Johnson accept If the investments are not mutually exclusive and no capital  rationing is involved?

Answer rating: 100% (QA)

Answers a When comparing TeePTeep Motel and Dodo Motel the variance of TeeP Teep is 113000 while the variance of Dodo Motel is 166000 This means that ... View the full answer