A data analytics company wants Short Stop to provide a new client billing process which integrates their current customers with new payment options as well as technical information. The payment for Short Shop's services would be structured with specific payments to be $400,000 immediately, a further $300,000 at the end of 2nd year, $500,000 at the end of 4th year and $1000000 on completion, at the end of the 7th year.

The paid monies can be invested at a nominal rate of 95 p.a. compounded monthly.

To complete the desired work, Short Stop would have to purchase additional computers and data sources immediately which are valued at $1500000.

IN determining if this project for Short Stop, your manager wants you to provide a detailed information on the differences between the effective rate of return and a nominal rate. In what circumstances can we use these to evaluate investment opportunities?

The Rate is 9%

(9% p.a)