Net Present Value and Ice Cream
1.Sachin has asked his flat mate Jason for a $500 loan to cover a portion of his rent and utility costs. Sachin proposes repaying the loan with $300 from each of his next two financial aid disbursements, the first 4 months from now and the second 12 months from now. Jason's alternative is to earn 5% annually in his money market account. Assume there is no risk of default, and that compounding is monthly. What is the NPV of the loan? (Enter just the number without the $ sign or a comma; round off decimals.)
2.Juanita has an opportunity to invest in her friend's clothing store. The initial investment is $10,000 and her expected cashflows are as follows: Year 1: $300 Year 2: $500 Year 3: $1200 Year 4: $2000 Year 5: $2000 Year 6: $5000 Year 7: $5000 What is Juanita's IRR on this investment?(No more than two decimals in the percentage interest rate, but do not enter the % sign.)
3.Austin needs to purchase a new heating/cooling system for his home. He is thinking about having a geothermal system installed, but he wants to know how long it will take to recoup the additional cost of the system. The geothermal system will cost $20,000. A conventional system will cost $7,000. Austin is eligible for a 30% tax credit to be applied immediately to the purchase. He estimates that he will save $1,500 per year in utility bills with the geothermal system.These cash outflows can be assumed to occur at the end of the year. The cost of capital (or interest rate) for Austin is 7%. How long will Austin have to use the system to justify the additional expense over the conventional model?( i.e, What is the DISCOUNTED payback period in years? Discount future cash flows before calculating payback and round to a whole year.)
4.Wen Seng operates an ice cream shop. He is trying to decide whether to expand his business to include ice cream cakes. He will need some additional space that will cost him $7,200 per year at the end of each year and some additional equipment that will cost $10,000
2.Juanita has an opportunity to invest in her friend's clothing store. The initial investment is $10,000 and her expected cashflows are as follows: Year 1: $300 Year 2: $500 Year 3: $1200 Year 4: $2000 Year 5: $2000 Year 6: $5000 Year 7: $5000 What is Juanita's IRR on this investment?(No more than two decimals in the percentage interest rate, but do not enter the % sign.)
3.Austin needs to purchase a new heating/cooling system for his home. He is thinking about having a geothermal system installed, but he wants to know how long it will take to recoup the additional cost of the system. The geothermal system will cost $20,000. A conventional system will cost $7,000. Austin is eligible for a 30% tax credit to be applied immediately to the purchase. He estimates that he will save $1,500 per year in utility bills with the geothermal system.These cash outflows can be assumed to occur at the end of the year. The cost of capital (or interest rate) for Austin is 7%. How long will Austin have to use the system to justify the additional expense over the conventional model?( i.e, What is the DISCOUNTED payback period in years? Discount future cash flows before calculating payback and round to a whole year.)
4.Wen Seng operates an ice cream shop. He is trying to decide whether to expand his business to include ice cream cakes. He will need some additional space that will cost him $7,200 per year at the end of each year and some additional equipment that will cost $10,000