Net present value of investment

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1. Two mutually exclusive investments cost $10,000 each and have the following cash inflows. The firm's cost of capital is 10%. Investment: Cash Inflow A B Year 1 - - Year 2 $15,407 - Year 3 - - Year 4 - $19,390

A. What is the net present value of each investment?

B. What is the internal rate of return for each investment?

C. Which investment(s) should the firm make and why?

D. Would your answers be different for C if the funds received in Year 2 for investment A could be reinvested at 16%

2. If a new college graduate wants a car costing $21,000, how much must be saved annually over the next four years if the funds earn 5%?

3. You purchase a bond for $875. It pays $60 a year (that is, the semiannual coupon is 3%), and the bond matures after 10 years. What is the yield to maturity?

Reference no: EM13785633

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