On 1st January 2020, Peter Green has two investment opportunities, Project A and Project B:

Project A is expected to produce cash flows of $1 million every two years with the first cash flow occurring on 1st January 2021. Project A is expected to produce a total of 10 cash flows over its life. The appropriate discount rate is 9% p.a. compounded monthly.

Project B is expected to generate a cash flow every six months for ten years with the first cash flow due in six months' time. A discount rate of 9% p.a. compounded monthly also applies to Project B.

Identify the amount of the periodic cash flow from Project B would need to be in order for Mr Green to be indifferent between Project A and Project B. Show all workings to support your answer.

Answer rating: 100% (QA)

78554700 WORKING Project A PV 1000000 1 009122 1000000 1 009124 1000000 1 0091220 PV 100... View the full answer