Ginny´S Restaurant

In: Business and Management

Submitted By carlos
Words 1165
Pages 5
1. The net present value of Virginia’s assets is approximately $4.83 million dollars. This value was obtained from summing the $2 million Virginia receives today plus the present value of the $3 million she will receive exactly one year from now. These calculations are depicted in Table A. Thus, Virginia has approximately $4.83 million dollars at her disposal to spend and consume today if she pleases. This figure takes into account how much she could borrow today in order to have exactly $3 million to pay back one year from now, plus the original $2 million she receives today. Of course, if she consumes nothing today, she will have a greater amount to spend in exactly one year. If Virginia invests her holdings at the 6% interest rate, the future value of her original assets will be $2.12 million under annual compounding, and at best will be approximately $2.124 million under daily compounding if she consumes nothing today and decides to let her money grow for a year. Considering the fact that she will receive an additional $3 million one year from today, the maximum amount of money Virginia would be able to spend and consume one year from today would be between $5.12 and $5.124 million depending on the compounding rate of an investment which yields an interest rate of 6%. Table B displays these calculations in detail.

2. My analysis shows that investing $3 million in Ginny’s restaurant today is the optimal investment decision for Virginia. The calculations included in Table C demonstrate that Virginia achieves her highest net present value of approximately $5.15 million when she invests $3 million and saves $1 million. This investment choice is supported by a high future cash flow, and will provide a substantial amount of up-front capital and labor for the Ginny’s Restaurant. Thus, by making the investment Virginia increases her current wealth and the present…...

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