1. You are given two investment alternatives. Use the DCF method to select in which to invest. Assume an investment budget of Php 500,000 and the desired return on investment is 9%.
The first investment opportunity is to buy a land plot in an underdeveloped area for Php 500,000 that can be sold in 10 years for Php 1,300,000. And the alternative is to invest in a private equity fund which will give an 11% return for the next ten years, plus return the initial investment at the end of the ten years.
Which investment will be more profitable? Explain and show your solution. (20 points)
2. Look at two different project ideas within a company and decide on where to invest.
The company has a Weighted Average Cost of Capital of 10%. Currently, the company has a budget of Php 400,000 to improve costs related to the production line. One will decrease external repair services with Php 40,000 for the first two years and with Php 80,000 for the next eight years. The alternative project will reduce the cost of the overall biannual full maintenance of the assembly line by Php 135,000.
Which project should the company invest, considering which project will provide more future benefits in the form of cost reductions? Explain and show your solution. (20 points)