(b) You have been offered the opportunity to purchase a start upcompany building electric cars for the Australian market calledGreen Motors P/L. Your initial investment is $22,000,000. The termof the project is 5 years. The project has an expected rate ofreturn of 10% pa. All expected cash flows for the project are belowand you have an expected rate of return of 10% pa.
End of year | Cash flow ($mil) |
1 | 1.8 |
2 | 3.0 |
3 | 6.5 |
4 | 8.4 |
5 | 12.3 |
(i) Based on your required rate ofreturn would you purchase this investment? Present all calculationsto support your answer. (2.5 marks)
(ii) Would you change your opinion from (i) if the expected rateof return rose to 15%? Present all calculations to support youranswer. (2.5 marks
