Reference no: EM132564707

1. Suppose we invest $500 in Public Storage REIT stock and hold it for three years. Our dividends are as follows: $40, $43, and $48. We sell the stock at the end of the holding period and on our last dividend date for $560. What is our annual return using IRR?

2. We decide to invest $10,000 in Plum Creek Timber REIT stock and hold it for five years. Our dividends are as follows: $75, $75, $78, $78, and $81. We sell the stock at the end of the holding period and receive $12,000. What is our annual return using IRR?

3. Joe decides to purchase new insulated windows for his 150-year-old home. These windows should save him approximately $100 a month on his utility bills over 15 years. The original cost of the windows is $10,000 and Joe's discount rate is 8%. What is the NPV? Should he purchase the windows? Why or why not?

4. Michelle buys a new central air unit for her home. The unit is expected to save $35 a month from her electricity bill over the next eight years. The original cost of the unit is $7,500 and her discount rate is 5%. What is the NPV? Should she have purchased the unit? Why or why not?

5. Racine is thinking of buying a new home. Currently, she owns an older home that costs her approximately $11,000 a year. The cost of the new home is $150,000. She can obtain a $120,000 mortgage for 30 years at 4% interest. The home has no homeowner's association dues. Annual costs for property taxes, hazard insurance and estimated landscaping/maintenance is approximately $450, $1,000, and $600. She estimates that she will live in the home for six years and resell it for $185,000. Racine's discount rate is 7%.
Is this a good investment according to NPV? IRR? What if the older home cost $14,000 a year?

6. Terrie is thinking of buying a new home. Currently, she owns an older home that costs her approximately $30,000 a year. The cost of the new home is $320,000. She can obtain a $255,000 mortgage for 20 years at 3.5% interest. The home has homeowner's association dues of $150 a month. Annual costs for property taxes, hazard insurance, and estimated landscaping/maintenance is approximately $1,250, $1,500, and $1,500. She estimates that she will live in the home for 10 years and resell it for $400,000. Terrie's discount rate is 5%. Is this a good investment according to NPV? IRR? What if the older home cost $35,000 a year?