A corporation is looking to invest $200,000. Their cost of capital is j2 = 8%. They have
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A corporation is looking to invest $200,000. Their cost of capital is j2 = 8%. They have narrowed the possible investments to the following four choices:
(i) Buy a 10-year bond that pays semi-annual coupons of $8150 and is redeemable for $202,000.
(ii) Buy perpetuity that pays $16,500 at the end of every year
(iii) Buy an ordinary annuity which provides $1640 at the end of every month for 20 years
(iv) Buy an investment that provides a payment of $125,000 at the end of 2-years and another payment of $130,000 at the end of 4 years.
Using the net present value method, determine which investment the company should buy by ranking the investments from best to worst. Show all your work
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