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
Related questions
Question
![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.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F099b2714-8e4e-4b50-876f-bcd614e0f4ef%2F06ebcef4-a079-44d6-a25e-cba117ce63a7%2Fh8cvay_processed.png&w=3840&q=75)
Transcribed Image Text: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.
AI-Generated Solution
Unlock instant AI solutions
Tap the button
to generate a solution
Recommended textbooks for you
![Fundamentals of Financial Management, Concise Edi…](https://www.bartleby.com/isbn_cover_images/9781285065137/9781285065137_smallCoverImage.gif)
Fundamentals of Financial Management, Concise Edi…
Finance
ISBN:
9781285065137
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
![Fundamentals of Financial Management, Concise Edi…](https://www.bartleby.com/isbn_cover_images/9781305635937/9781305635937_smallCoverImage.gif)
Fundamentals of Financial Management, Concise Edi…
Finance
ISBN:
9781305635937
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
![Fundamentals of Financial Management, Concise Edi…](https://www.bartleby.com/isbn_cover_images/9781285065137/9781285065137_smallCoverImage.gif)
Fundamentals of Financial Management, Concise Edi…
Finance
ISBN:
9781285065137
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
![Fundamentals of Financial Management, Concise Edi…](https://www.bartleby.com/isbn_cover_images/9781305635937/9781305635937_smallCoverImage.gif)
Fundamentals of Financial Management, Concise Edi…
Finance
ISBN:
9781305635937
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning