Homework Help is Here – Start Your Trial Now!
Business
Finance
Suresh, a recently retired teacher, has requested you to help him select one from the following two proposals before him:

Suresh, a recently retired teacher, has requested you to help him select one from the following two proposals before him:

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
See similar textbooks
icon
Related questions
Question
7:46 PM Ill WiFi 90 Suresh, a recently retired teacher, has requested you to help him select one from the following two proposals before him: Proposal A: To establish and run a primary school From the coming month, he could start a LKG class from a small vacant building owned by one of his relatives, by modifying the same at a cost of Rs.5 lakh. Thereafter at the end of each year, beginning from the first year, a fresh room would be added to the existing building to house the students of KG, first standard, second standard,, till the fifth standard. The estimated expenses for the same would be Rs.4 lakh at the end of the first year which would be rising per year by Rs.1 lakh. For all the years, the average net income per student would be Rs.10, 000 per annum as reckoned at the end of the year and their strength per class would be 20. Suresh is assured of getting a bank loan for all his project expenses at an interest rate of 12 percent. Once the fifth standard completes its first year, Suresh could sell the school to his relative and get cash compensation at twice the net annual school income at that time.
Transcribed Image Text:7:46 PM Ill WiFi 90 Suresh, a recently retired teacher, has requested you to help him select one from the following two proposals before him: Proposal A: To establish and run a primary school From the coming month, he could start a LKG class from a small vacant building owned by one of his relatives, by modifying the same at a cost of Rs.5 lakh. Thereafter at the end of each year, beginning from the first year, a fresh room would be added to the existing building to house the students of KG, first standard, second standard,, till the fifth standard. The estimated expenses for the same would be Rs.4 lakh at the end of the first year which would be rising per year by Rs.1 lakh. For all the years, the average net income per student would be Rs.10, 000 per annum as reckoned at the end of the year and their strength per class would be 20. Suresh is assured of getting a bank loan for all his project expenses at an interest rate of 12 percent. Once the fifth standard completes its first year, Suresh could sell the school to his relative and get cash compensation at twice the net annual school income at that time.
7:47 PM bo .illl WiFi : Proposal B: Investment in commercial space Hitesh Builders, owned by one of his ex-students, are planning to start a commercial building project and have made a special pre-launch offer of 650 sq ft. to Suresh on the following terms: He needs to invest Rs.10 lakh at the end of each year with the first payment due at the end of the same month. The building would be ready for the business in just one year and he could expect an annual rent of Rs.3.6 lakh by letting out his space there. Moreover, from the beginning of the second year he would be appointed as the building supervisor at an annual remuneration of Rs.120, 000. An annual increase of 10 per cent could be expected in both the rent and the salary. At the end of the seventh year the commercial space could be sold back to the builders at Rs.120 lakh. Entire financing would be arranged by the builder through their bank at an interest rate of 13 percent. Which of the above proposals, according to you, is financially more attractive to Suresh and why? ← 89
Transcribed Image Text:7:47 PM bo .illl WiFi : Proposal B: Investment in commercial space Hitesh Builders, owned by one of his ex-students, are planning to start a commercial building project and have made a special pre-launch offer of 650 sq ft. to Suresh on the following terms: He needs to invest Rs.10 lakh at the end of each year with the first payment due at the end of the same month. The building would be ready for the business in just one year and he could expect an annual rent of Rs.3.6 lakh by letting out his space there. Moreover, from the beginning of the second year he would be appointed as the building supervisor at an annual remuneration of Rs.120, 000. An annual increase of 10 per cent could be expected in both the rent and the salary. At the end of the seventh year the commercial space could be sold back to the builders at Rs.120 lakh. Entire financing would be arranged by the builder through their bank at an interest rate of 13 percent. Which of the above proposals, according to you, is financially more attractive to Suresh and why? ← 89
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps with 4 images

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Revenue Recognition
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS