I30-59

Question

The investment team is evaluating several opportunities across six cities. The team leader has established the following financial criteria to guide investment decisions:
 
• Profit (defined as 5-year returns minus investment cost) must be at least $100 million
 
• The ratio of 5-year returns to investment cost must be at least 2
 
• The 5-year IRR (Internal Rate of Return) must be at least 20%The table below shows the investment data for six cities. All dollar amounts ($) are in millions.
      City   Investment Cost   5-Year Returns   10-Year Returns   IRR (5 Year)       A   $500   $600   $1300   10%       B   $700   $900   $1200   18%       C   $120   $600   $1000   30%       D   $400   $850   $2000   20%       E   $450   $500   $1500   5%       F   $50   $450   $600   45%The legal team has reviewed the potential risks associated with investing in each city. Their findings are summarized below:
 
• City A: New tax laws and strict environmental regulations are expected to reduce profitability and cause project delays. Investment is not recommended.
 
• City B: Ongoing political instability creates risks of disruption and asset damage. Investment is not recommended.
 
• City C: No risks identified.
 
• City D: A moratorium on large-scale developments is in place, risking indefinite project delays or cancellations. Investment is not recommended.
 
• City E: A history of expropriating foreign assets presents high risks to investment security. Investment is not recommended.
 
• City F: No risks identified.

Bunuel · Answer

Official Solution:

To meet the financial criteria, a city must have:
 
• Profit ≥ $100m
 
• Return-to-investment ratio ≥ 2
 
• IRR ≥ 20%
 
For each city — check criteria in order and stop at the first failure. • City A: Profit = $100m (meets), Ratio = 1.2 (fails) → Does not meet criteria.
 
• City B: Profit = $200m (meets), Ratio = 1.29 (fails) → Does not meet criteria.
 
• City C: Profit = $480m (meets), Ratio = 5 (meets), IRR = 30% (meets) → Meets criteria.
 
• City D: Profit = $450m (meets), Ratio = 2.13 (meets), IRR = 20% (meets) → Meets criteria.
 
• City E: Profit = $50m (fails) → Does not meet criteria.
 
• City F: Profit = $400m (meets), Ratio = 9 (meets), IRR = 45% (meets) → Meets criteria.

Correct answer:

Considering only the team leader’s financial criteria for investment and the investment data, which of the following includes all cities that satisfy the investment requirements?

	City C
	City F
	City A, City C, City F
	City C, City D, City F
	City D, City F

	City C
	City F
	City A, City C, City F
	City C, City D, City F
	City D, City F

I30-59

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My Rewards

City	Investment Cost	5-Year Returns	10-Year Returns	IRR (5 Year)
A	$500	$600	$1300	10%
B	$700	$900	$1200	18%
C	$120	$600	$1000	30%
D	$400	$850	$2000	20%
E	$450	$500	$1500	5%
F	$50	$450	$600	45%