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Ginny s Restaurant Case - Research Paper - Cndail


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Ginny's Restaurant Case


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By cndail, February 2011 | 3 Pages (635 Words) | 1704 Views|

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Ginnys Restaurant Case An Introduction to Capital Investment Valuation


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1. Virginias current wealth is $4,830,188.68 CF0=2,000,000 CF1=3,000,000 I/Y=6% Virginia can spend and consume now $4,830,188.68. If she waits to spend and consume for one year she will have $5,120,000 to spend and consume. 2. Virginia should invest $3,000,000 in Ginnys Restaurant. In one year the $4,000,000 endowment will be worth $4,240,000 without investing it. If Virginia invests $3,000,000 in Ginnys Restaurant it will give her a future cash flow of $5,460,000.00. This investment will yield the largest amount of money and the end of one year. Option 1: Invest $1,000,000. A $1,000,000 investment will have future cash flows of $1,800,000. The additional $3,000,000 that Virginia will have left after the investment will be worth $3,180,000 at the end of the year. FV=$3,000,000(1.06) FV=$3,180,000 Total cash flows at the end of year one will be $3,180,000+$1,800,000=$4,980,000.00 Option 2: Invest $2,000,000. A $2,000,000 investment will have future cash flows of $3,300,000. The additional $2,000,000 that Virginia will have left after the investment will be worth $2,120,000 at the end of the year. FV=$2,000,000(1.06)
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FV=$2,120,000

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4/27/13

Ginny s Restaurant Case - Research Paper - Cndail

FV=$2,120,000 Total cash flows at the end of year one will be $2,120,000+$3,300,000=$5,420,000.00 Option 3: Invest $3,000,000. A $3,000,000 investment will have future cash flows of $4,400,000. The additional $1,000,000 that Virginia will have left after the investment will be worth $1,060,000 at the end of the year. FV=$1,000,000(1.06) FV=$1,060,000 Total cash flows at the end of year one will be $1,060,000+$4,400,000=$5,460,000.00 Option 4: Invest $4,000,000. A $4,000,000 investment will have future cash flows of $5,400,000. 3. If Virginia invests the $3,000,000 in Ginnys Restaurant then she will be unable to consume $3,800,000 that she would prefer to have immediately. By investing the $3,000,000 in Ginnys Restaurant she will... [continues]

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(2011, 02). Ginny's Restaurant Case. StudyMode.com. Retrieved 02, 2011, from http://www.studymode.com/essays/Ginny-s-Restaurant-Case-594188.html

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