Question: You are provided with the following information regarding two potential investment opportunities: Investment X Investment Y Initial cost: 1,200,000 Initial cost: 1,100,000 Cash flow Year

You are provided with the following information regarding two potential investment opportunities:

Investment X

Investment Y

Initial cost: 1,200,000

Initial cost: 1,100,000

Cash flow Year 1: 400,000

Cash flow Year 1: 900,000

Cash flow Year 2: 500,000

Cash flow Year 2: 400,000

Cash flow Year 3: 500,000

Cash flow Year 3: 500,000

Cash flow Year 4: 600,000

Cash flow Year 4: 600,000

Cash flow Year 5: 600,000

Total cash flows: 1,300,000

Total cash flows: 1,400,000

The business can only invest in one of the opportunities, and the required rate of return is 8%.

3.1 Which one of the two opportunities appear more lucrative, only looking at the cash flows over the lifetime of the investments?

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