Question

You are a consulting firm intern and your job is to help a client choose investment projects. your client, realestate, is a young and growing commercial and residential real estate firm. after reading through all the related information of those projects, you have compiled the following cash flow projections:col1 cf0 cf1 cf2 cf3 col2 project 1 100 50 50 50 col3 project 2 -80 40 45 50 col4 project 3 -70 30 40 50 col5 project 4 -60 30 40 60 col6 project 5 -50 25 30 70 cf0 denotes the initial investment. cf1 is the cash flow at the end of the first year. cf2 is the cash flow at the end of the second year, and so on. the units are millions of dollars. the question is : suppose realestate has a budget of $150m, recommend the projects it should take.

Answer 1

RealEstate should consider investing in Projects 1, 2, and 3 based on cash flow projections and their budget of $150m. This selection provides a diversified investment portfolio and potential returns on both commercial and residential real estate.

Step-by-step explanation:

To choose the investment projects for the client, RealEstate, we need to consider the cash flow projections and their budget of $150m. Comparing the projects, we can see that Project 1 has a positive cash flow in all four years, while Projects 2, 3, 4, and 5 have negative cash flows in the initial year. Based on this, Project 1 seems like a good choice for a positive return on investment. However, since RealEstate has a budget of $150m, they can invest in multiple projects.

Considering the available budget, RealEstate can invest in Projects 1, 2, and 3. This would give them a total initial investment of $150m ($100m from Project 1, $40m from Project 2, and $10m from Project 3).

By selecting these three projects, RealEstate ensures a diversified investment portfolio that includes both commercial and residential real estate. This strategy allows them to mitigate risk and potentially maximize their returns over the years.