1.

a. A mining firm makes annual deposits of $100,000 into a reclamation fund for 12 years. If the firm must have $2million when the mine is closed, what interest rate XX% must the investment earn? Round off to nearest whole number.

b. Consider the following cash flow. Which answer is closest to the correct %.

Year Cash Flow

0 -$50

1-3 0

4 +85

c. Warning: when using IRR, UNLIKE NPV, you include year 0 in the values.

Consider the following cash flow:

Year Cash Flow

0 -400

1 0

2 +200

3 +150

4 +100

5 +50

What is the closest rate of return for this cash flow?

d. A mine is for sale for $240,000. It is believed the mine will produce a profit of $65,000 the first year, but the profit will decline $5,000 a year after that, eventually reaching zero, whereupon the mine will be worthless. What rate of return would this $240,000 investment produce for the purchaser of the mine. Pick the closest value.

2.

a. Bob is considering investing in one of the following investment projects.

A B C D

Initial cost 100 130 200 330

Annual Income 148 130.78 185 184.55

Annual Cost 123.62 92 137.52 93

Each alternative has a 5 year useful life.

What is the rate of return for alternative A?

b. What is the rate of return for alternative B?

c. What is the rate of return for alternative C?

d. What is the rate of return for alternative D?

3.

a. If Bob requires at least an 8% return on his investments,what is the incremental rate of return between the choices left?

b. Which alternative should he select?