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 Stop's services would be structured with the specific payments to be $400,000 immediately, a

further $300,000 at the end of the 2nd year, $500,000 at the end of the 4th year and $1,000,000 on

completion, at the end of the 7th year.

The paid monies can be invested at a nominal rate of 9% 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 $1,500,000.

In determining if this project is a viable 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 different investment opportunities?