Response to discussion

Please respond to this discussion comments, of one of the classmates, in one paragraph (50 words). It is about Risks and Returns (Project 4)

McCormick and Company should invest in the new factory in Largo, Maryland. The risk of investing in the factory will result in a positive return. If they purchase the factory, in 10 years they will have a present value of $4,068,570.20. The 10-year present value is greater than McCormick’s initial investment to purchase the factory. After 5 years, McCormick’s cash flow will total $1,605,000.00. Examining the companies cash flow we can determine that their cash flow will continue to increase over the following years. With a 20% rate of return, McCormick should make 20% more than what they paid to purchase the new factory. Based on all the excel calculations of McCormick acquiring the Largo factory, I'd say that the risk is well worth the return.

When investing and acquiring new companies, there is always a risk involved. A risk is “the chance that an investment’s actual return will be different from what was expected” (Staff, I, p.1). A return is “the gains or losses one brings in as a result of an investment” (Staff, I, p.1). For example, stocks can have a high return, but they are also a risky investment as the stock market is constantly fluctuating and changing. When looking to invest, companies need to weigh the returns of a company compared to the risk of acquiring them. Increased risk often goes hand-in-hand with an increased return. Low-level risk results in potentially low returns. Companies need to consider how much of a risk they are willing to take and calculate their ROE and ROA potentials before making investments.