Reference no: EM131175250
Betty is evaluating an investment that will provide the following returns at the end of each of the following years:
year 1, $22,500
year 2, $20,000
year 3, $17,500
year 4, $15,000
year 5, $12,500
year 6, $0
year 7, $22,500
year 8, $22,500
Betty believes she should earn an annual rate of 9% on this investment. How much should she pay now to buy this investment?
Dave has decided to purchase a $40,000 boat. He can either pay the whole amount now, or accept the dealer's terms of $10,000 down payment, and successive payments of $10,000, $9000, $9000 and $9,000 at the end of each of the next four years.
(Use the interest rate tables to solve the following problems)
Required:
Which choice should Dave make if the interest rate is 14% compounded annually? Why?
Carla has decided to purchase a $30,000 car. She can either pay the whole amount now, or accept the dealer's terms of $7000 down payment, and successive payments of $10,000, $9000, and $8000 at the end of each of the next three years.
(Use the interest rate tables to solve the following problems)
Required:
Which choice should Carla make if the interest rate is 14% compounded annually? Why?
Walt is evaluating an investment that will provide the following returns at the end of each of the following years:
year 1, $12,500
year 2, $10,000
year 3, $7,500
year 4, $5,000
year 5, $2,500
year 6, $0
year 7, $12,500
Walt believes he should earn an annual rate of 9% on this investment. How much should he pay now to buy this investment?
The Sunshine company is considering two projects, project A and project B. Project A requires the purchase of an equipment but no working capital investment whereas project B requires a working capital investment but no equipment. The relevant information for net present value analysis is given below:
Project A Project B
Cost of equipment $600,000 -
Working Capital needed - $600,000
Annual cash inflows $160,000 $120,000
Salvage value of equipment $ 40,000 -
Project life 8 years 8 years
The working capital required for project B will be released (freed) at the end of project life, and so it is an inflow at the end of year 8. Sunshine company uses an 18% discount rate.
Required: Select the best investment using net present value (NPV) method.
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