You just graduated from university and are planning to start your own business. You have saved $100,000,
Question:
You just graduated from university and are planning to start your own business. You have saved $100,000, and you are considering investing it in a project that promises to generate a 25% annual return. However, you have also been offered a job that pays an annual salary of $50,000, with the opportunity to receive a $10,000 annual bonus. The job requires you to work 40 hours a week, and you estimate that you will need to work an additional 20 hours a week to manage the project.
a) Calculate the present value of the investment opportunity, assuming that it will last for five years.
b) Calculate the net present value of the investment opportunity, assuming that the discount rate is 12%.
c) Should you invest your savings in the project or take the job offer? Explain your answer.
Management Accounting
ISBN: 9781760421144
7th Edition
Authors: Kim Langfield Smith, Helen Thorne, David Alan Smith, Ronald W. Hilton