06
= $5,553.33 + $14,133.33 = $19,686.66
ROI = ($31,080 - $19,686.66) / $19,686.66 = 0.5787
Scenario 2: The midpoint bid
Gain from Investment = $90 x 12 + $30,000 = $31,080
Total Cost of Investment = $292,580.86, out of which $92,580.86 are owned by Mr. King and $200,000 come from bank loans
Annual cost of investment = $92,580.86 / 15 + $200,000 x 1.06 / 15 = $20,305.38
ROI = ($31,080 - $20,305.38) / $20,305.38 = 0.5306
Scenario 3: The highest bid
Gain from Investment = $90 x 12 + $30,000 = $31,080
Total Cost of Investment = $311,111.11, out of which $111,111.11 are owned by Mr. King and $200,000 come from bank loans
Annual cost of investment = $111,111.11 / 15 + $200,000 x 1.06
/ 15 = $21,540.73
ROI = ($31,080 - $21,540.73) / $21,540.73 = 0.4428
All three scenarios reveal positive values of the return on investment, which means that the purchase of medallions will generate positive cash flows. In other words, it is advisable to make...
Out of the three scenarios, the most desirable one is the first, where the bid price is the lowest and the ROI is the highest.
