OrdiCom Inc. specializes in the field of satellite telecommunications. It plans to expand its R&D division in 2 years. To carry out her project, she will have to start investing those Retained Earnings. At the general meeting of shareholders, two directors of the company present the following proposals:

Proposal 1: An investment that will yield $100,000 per year for the first 2 years and increase to $150,000 per year for the next 5 years, and thereafter increase to $200,000 the last 3 years.

Proposal 2: An investment that will yield $135,000 in the first year and that will increase by 3% each year until the tenth year.

a. Which proposal will she have to accept knowing that the discount rate is 6%?

b. Would your choice change if for proposal 2, the amount received would be $165,000 per year for ten years?

Answer rating: 100% (QA)

To determine which proposal OrdiCom Inc should accept we need to calculate the Net Present Value NPV ... View the full answer