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1. (10 pts.) Find the PV of a stream of payments lasting 4 years. Each payment is for $300, and the discount rate is 5%.
1. (10 pts.) Find the PV of a stream of payments lasting 4 years. Each payment is for $300, and the discount rate is 5%. The payments are all received at the end of the year, starting with the first payment, received exactly one year from the present. Show your work. 2. (10 pts.) Find the PV of the following perpetuity: Yearly payment = $5,000 (received at the end of each year) Discount rate = 8% Show your work. 3. (20 pts.) After the end of Harvard Summer School, you decide to stay in the Cambridge area and start your own business. You think you see a couple of opportunities. Knowing first-hand the pressure Harvard students are under, you consider opening a business that allows them to let off steam and get rid of their aggression: A paintball center right in The Square. The cost of the project would be $250,000, payable up front, while revenues are expected to be $13,000 per year, forever. Assume profits are always received at the end of the year, and the only cost of the project is its acquisition price, $250,000, payable immediately. a. (5 pts.) If the rate of return on comparable projects is 4%, is this project worthwhile? Show your calculations. b. (5 pts.) What is the project's internal rate of return (IRR)? Show your calculations
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