Is the worth while to invest bonus

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Problem 1: You just received a bonus of ? 1 million from your firm. You are looking to invest it in a good business to enhance your wealth. Because you do not know where to invest your money, you hire a consulting organization that helps you identify the best business to invest. For this service, the firm charges you ? 100, 000 up front. After the firm gives you the recommendation, you choose to invest in a business for 3 years. Sales in this business is expected to be ? 600, 000 in year 1 and expected to grow at the rate of 10% for the remaining years. Cost of running the business is 30% of sales. Each year, the firm also has to invest 20% of the sales in working capital. However, the initial cost can be depreciated over the life of the business in a straight line method with no salvage value. The applicable tax rate for this business is 40% and the discounting rate is 10%. Given all this information, is this worth while to invest your bonus?

Reference no: EM132910355

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