Identify for him whether these investments are good

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Problem: DIY Investments Ltd has proposed two investments to your client, however your client is unsure of their potential, with your task being to provide some advice on these investments. The first investment costs $60,000 today and pays the following cash flows in years 1 to 6: Yr 1: $10,000, Yr 2: $15,000, Yr 3: $20,000, Yr 4: $25,000, Yr 5: $30,000 and Yr 6: $35,000.

The second investment option is a perpetuity which pays $6,000 a year with the 1st cash flow occurring at the end of year 4. Your client can buy the investment today for $40,000.

Your client indicates that he requires a rate of return of 12% p.a. which can be applied to both of these investments. Identify for him whether these investments are good (or not).

Reference no: EM132480920

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