Satisfactory Essays

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Ginny’s Restaurant Case An Introduction to Capital Investment Valuation

1. Virginia’s 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 Ginny’s 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 Ginny’s 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.
*…show more content…*

4. Virginia should still make the investment into Ginny’s Restaurant even if she has to borrow money from the bank. The investment in Ginny’s Restaurant yields a high rate of return so if the bank will loan her $3,000,000 it would be worth investing.

5. If Virginia shares her ownership interest with a widely-diffuse group of investors, savers and spenders she should invest 3 million would be the amount that savers and spenders would comprise on investing. Investing 3 million would satisfy spenders because it yields the highest NPV. This investment would also satisfy savers because it will yield future cash flows of 4.4 million.

6. Virginia should invest in selling smoked hams on the internet. The present value of the future cash flows is $3,207,547.17 and the required investment is less ($2,500,000). The investment would yield a positive NPV of $707,547.17, so the project would be worth investing in. Since Virginia does not want to use internal cash to finance the investment, she would have to sell more shares of

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