Simon is considering purchasing an emu, which he can graze for free in his backyard. Once the emu reaches maturity (in exactly three years), Simon will be able to sell it for $2,000. The emu costs $1,500. a. Suppose that interest rates are 8%. Calculate the net present value of the emu investment. Does the NPV indicate that Simon should buy the emu? b. Suppose that Simon passes on the emu deal, and invests $1,500 in his next-best opportunity: a safe government bond yielding 8%. Is this outcome better or worse than buying the emu? Please explain.

Simon is considering purchasing an emu, which he can graze for free in his backyard. Once the emu reaches maturity (in exactly three years), Simon will be able to sell it for $2,000. The emu costs $1,500. a. Suppose that interest rates are 8%. Calculate the net present value of the emu investment. Does the NPV indicate that Simon should buy the emu? b. Suppose that Simon passes on the emu deal, and invests $1,500 in his next-best opportunity: a safe government bond yielding 8%. Is this outcome better or worse than buying the emu? Please explain.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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