You are an investor and three companies pitch to you for the same amount of money, i.e. £1m. The profit over the lifetime of the product of each company is shown in below table, along with the Internal Rate of Return (IRR). Year 1 2 3 4 5 IRR Startup #1 £0.5m £0.5m £0.5m 23.4% Startup #2 £0.4m £0.4m £0.4m £0.4m £0.4m 28.6% Startup #3 £0.2m £0.5m £0.5m £1m 31.3% Calculate the payback period and NPV at 20% discount rate for all three companies. Explain which company you would invest in, and why.

You are an investor and three companies pitch to you for the same amount of money, i.e. £1m. The profit over the lifetime of the product of each company is shown in below table, along with the Internal Rate of Return (IRR). Year 1 2 3 4 5 IRR Startup #1 £0.5m £0.5m £0.5m 23.4% Startup #2 £0.4m £0.4m £0.4m £0.4m £0.4m 28.6% Startup #3 £0.2m £0.5m £0.5m £1m 31.3% Calculate the payback period and NPV at 20% discount rate for all three companies. Explain which company you would invest in, and why.

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

8th Edition

ISBN:9781285065137

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter8: Risk And Rates Of Return

Section: Chapter Questions

Problem 6DQ

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