@ Chrome File Edit View History Bookmarks Profiles Tab Window Help ) F Q S CE MonFeb 17 11:31 AM a @0@ FB Content x [BY 42042625 x + v > G 23 learn-us-east-1-prod-fleet01-beaker-xythos.content.blackboardcdn.com/5a3199fc4282a/42042625?X-Blackboard-S3-Bucket=learn-xythos-e.. Q + 6 Finish update : 42042625 Q2. Investment Decision Problem You are thinking about starting a Business, and after doing careful market & financial analysis (costed you $2,500) you have come up with two options: Option 1: Amazon Shipping Business Initial Capital required to start the business is $15,000 Expected Business Life is 8 years Expected Annual Revenue in Year 1 is 15,000 Expected Annual Expenses in Year 1 is 10,000 You Expect the Annual Revenue to grow at 20% every year You Expect the Annual Expenses to grow at 10% every year In year 4 you expect upgrade expense on physical set-up which would cost you $6000 In year 8 you will scrap all your physical set up for $2000, Assume Straight Line Depreciation Based on the underlying Risk, your annual required return from this business is 10% Option 2: Online Thrift Business Initial Capital required to start the business is $ 8,000 (Assume Straight Line Depreciation). Expected Business Life is 6 years Expected Annual Revenue in Year 1 is 8,000 Expected Annual Expenses in Year 1 is 6,000 Expected Growth in Annual Revenue is 7% every year, and no growth in expenses (constant). Based on the underlying Risk, your annual required return from this business is 10% For Both these Options calculate the Following (Show Complete Working): What is the Sunk Cost, and How do you identify it? Calculate the NPV of this Investment Calculate the Payback and Adjusted Payback of this Investment Calculate the Average Accounting Return of this Investment Calculate the Internal Rate of Return of this Investment Calculate the Profitability Index of this Investment What is the Cross Over Rate? Which Option should you choose and Why? (Hint: Compare using all methods) 9BOS8S=GO08%w BSB. 7 2 UTHz2Ae