You have inherited $10 Million from your rich uncle Jack. All of the sudden, everybody you know has come to you with bus

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You Have Inherited 10 Million From Your Rich Uncle Jack All Of The Sudden Everybody You Know Has Come To You With Bus 1 (356.67 KiB) Viewed 52 times

You have inherited $10 Million from your rich uncle Jack. All of the sudden, everybody you know has come to you with business ideas they are asking you to invest in. You have decided that three of these ideas are worth consideration: • Project A: An investment of $1.5 Million at t=0 will yield a payoff of $1.875 Million at t = 1 • Project B: An investment of $1.2 Million at t=0 will yield a payoff of $1.35 Million at t = 1 • Project C: An investment of $650 Thousand at t=0 will yield a payoff of $845 Thousand at t=1 1. For each project, calculate the NPV and decide whether you should invest if the interest rate is 15% and you can invest in as many of the projects as you wish (but cannot invest in the same project more than once) 2. If you can only invest in one project, which do you choose? 3. For each project, calculate the IRR and decide whether you should invest if you can invest in as many of the projects as you wish (but cannot invest in the same project more than once) 4. Do the IRRs of the projects mean your answer in part (2) was incorrect? Why or why not? 5. If you again can invest in as many projects as you wish, and you wish to consume $6 Million at t=0, what is the largest amount you can consume at t = 1? 6. How do your answers to all of the previous parts change if you can lend money to the bank at 15% but borrow at 20%?