1) Joe's Hardware is adding a new product line that will requirean investment of $1,476,000. Managers estimate that this investmentwill have a 10-year life and generate net cash inflows of $300,000the first year, $290,000 the second year, and $240,000 each yearthereafter for eight years. Assume the project has no residualvalue.
a. Compute the ROR for the investment (round answer to 2 decimalplaces)
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2) White, Co., is considering acquiring a manufacturing plant.The purchase price is $1,100,000. The owners believe the plant willgenerate net cash inflows of $314,000 annually. It will have to bereplaced in seven years.
a. Use the payback method to determine whether White shouldpurchase this plant. (round answer to 1 decimal place) The paybackperiod for the plant is ____years.
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3) Assume you want to retire early at age 52. You plan to saveusing one of the following two strategies: (1) save $2700 a year inan IRA beginning when you are 27 and ending when you are 52 (25years) or (2) wait until you are 37 to start saving and then save$4,500 per year for the next 15 years. Assume you will earn thehistoric stock market average of 10% per year.
a) How much out of pocket cash will you invest under the twooptions?
b) How much savings will you have accumulated at age 52 underthe two options?
c) explain results
d) If you were to let the savings continue to grow for 10 moreyears (with no further out of pocket investments), what would theinvestments be worth when you are age 62?
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4) Your best friend just received a gift of $9000 from hisfavorite aunt. He wants to save the money to use as "starter" moneyafter college. He can invest it (1) risk- free at 8%, (2) taking onmoderate risk at 12% or (3) taking on high risk at 16%
Begin by computing the future value of the investment under theeach of the three options. (round the investments worth to thenearest whole dollar)
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5) Janice wants to take the next six years off work to travelaround the world. She estimates her annual cash needs at $33,000(if she needs more, she will work odd jobs) . Janice believes shecan invest her savings at 10% until she depletes her funds.
a)How much money does Janice need now to fund her travels? Withthe 10% interest rate, Janet needs: $______
b) After speaking with a number of banks, Janice learns she'llonly be able to invest her funds at 4%. How much does she need nowto fund her travels?
1) Joe's Hardware is adding a new product line that will requirean investment of $1,476,000. Managers estimate that this investmentwill have a 10-year life and generate net cash inflows of $300,000the first year, $290,000 the second year, and $240,000 each yearthereafter for eight years. Assume the project has no residualvalue.
a. Compute the ROR for the investment (round answer to 2 decimalplaces)
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2) White, Co., is considering acquiring a manufacturing plant.The purchase price is $1,100,000. The owners believe the plant willgenerate net cash inflows of $314,000 annually. It will have to bereplaced in seven years.
a. Use the payback method to determine whether White shouldpurchase this plant. (round answer to 1 decimal place) The paybackperiod for the plant is ____years.
-----------------------------------------------------------------------------------------------------------
3) Assume you want to retire early at age 52. You plan to saveusing one of the following two strategies: (1) save $2700 a year inan IRA beginning when you are 27 and ending when you are 52 (25years) or (2) wait until you are 37 to start saving and then save$4,500 per year for the next 15 years. Assume you will earn thehistoric stock market average of 10% per year.
a) How much out of pocket cash will you invest under the twooptions?
b) How much savings will you have accumulated at age 52 underthe two options?
c) explain results
d) If you were to let the savings continue to grow for 10 moreyears (with no further out of pocket investments), what would theinvestments be worth when you are age 62?
-------------------------------------------------------------------------------------------------------------------
4) Your best friend just received a gift of $9000 from hisfavorite aunt. He wants to save the money to use as "starter" moneyafter college. He can invest it (1) risk- free at 8%, (2) taking onmoderate risk at 12% or (3) taking on high risk at 16%
Begin by computing the future value of the investment under theeach of the three options. (round the investments worth to thenearest whole dollar)
--------------------------------------------------------------------------------------
5) Janice wants to take the next six years off work to travelaround the world. She estimates her annual cash needs at $33,000(if she needs more, she will work odd jobs) . Janice believes shecan invest her savings at 10% until she depletes her funds.
a)How much money does Janice need now to fund her travels? Withthe 10% interest rate, Janet needs: $______
b) After speaking with a number of banks, Janice learns she'llonly be able to invest her funds at 4%. How much does she need nowto fund her travels?
