Question

Mike Karanikolas wants to enter the French market with his usual strategy of using influencers. Two influencers are considered to be hired.
The first one is a young growing personality and asks for a consideration of 100 000€ to be paid at the start of the contract, and Mike determines that over 4 years, this particular influencer would yield successively each year: 20 000€, 30 000€, 40 000€, 50 000€. Those amounts would be actualised at a 10% rate to take risk into account.
Is it a good investment? Answer to this question based on two selection criteria: Net Present Value and Internal Rate of Return.

The second influencer is more stable and is asking for the same 100 000€ consideration, but revenues would be more stable at 35 000€ every year at the end of the next 4 years.
Is the second influencer a better choice than the first influencer? Answer to this question based on the NPV criterion.

Answer 1

Answer:

A) Based on NPV, Mike will choose 2nd influencer.

B) Based on IRR, Mike will choose 2nd influencer.

Explanation:

See images to get the appropriate answer: