Net Present Value

Topics: Money, Compound interest, Interest Pages: 3 (777 words) Published: November 19, 2012
1.How much will \$1000 deposit in savings account earning a compound annual interest rate of 6% be worth at the end of the following number years? a) 3 years\$1,191
b) 5 years\$1,338
c) 10 years\$1,791

2. If you require a 9% return on your investment which would you prefer? a) \$5,000 todayPV = \$5,000
b) \$15,000 five years from todayPV = \$9,748.50
c) \$1,000 per year for 15 yearsPV = \$8061
Select option b

3.The Lancer Leasing Company has agreed to lease a hydraulic trencher to the Chavez Excavation Company for \$20,000 per year over the next 8 years. Lease payments are to be made at the beginning of each year. Assuming that Lancer leasing company requires a 9% rate of return, what is the PV of payments?

PV = \$120,663

4.The Mutual Assurance and life Company is offering an insurance policy under either of the following two terms: a) Make a series of 12 payments of \$1,200 at the beginning of each of the next 12 years (first payment being made today) b) Make a single lump-sum payment today of 10,000 and receive coverage for the next 12 years If you had investment opportunities offering an 8% annual return, which alternative would you prefer?

a) PV = \$9,766.66
b) PV = \$10,000
Select option a

5.A leading broker has advertised money multiplier certificates that will triple your money in 9 years; that is if you buy one for \$333.33 today, it will pay you \$1,000 at the end of 9 years? What rate of return will you earn on this money multiplier certificates?

i = 13.073%

6.Given two following mutually exclusive alternatives:
a) Alternative A: initial cost \$100, annual benefits \$60, useful life 7 years b) Alternative B: initial cost \$60, annual benefits \$20, useful life 7 years Which alternative is preferable if i = 12%?

a) PV = \$173.84
b) PV = \$31.28
Select option a

7.Project A and B have first...