1. A small accounting firm is considering the purchase of a computer software package that would reduce the amount of time needed to prepare tax forms. The software costs $2350 and this expense will be incurred immediately. The firm estimates that it will save $650 at the end of each year beginning in one year for 4 consecutive years, and also save $1788 in year 5. What is the payback on the computer package? Years

2.) A marketing research firm with annual cash inflows of $750 does not expect any growth in annual cash inflows over the next two years. The company, however, anticipates that annual cash outflows, currently at $150 will increase to $220 in year 1 and to $260 in year 2. Assuming the tax rate of 35%, determine the firm's cash flow in YEAR TWO. Assume straight line depreciation of $50 per year.

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3.) A distributor of computer software instruction manuals plans to expand distribution. Annual sales are currently $220000 and are expected to be $280000 one year from today. Assuming that expenses are 75% of sales each year, what is the cash flow one year from today if the tax rate is 34%? Assume straight line depreciation of $25,000.

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4.) This question is a variant of the Sport Hotel example that was presented in class, in the class notes, and in the Real Option chapter. Suppose that in the example, the first year expenditures that include the purchase of plans and permits is not $1 million but instead $1.4 million. All other aspects of the problem are the same as originally presented. Incorporating these new values, and the real option, what is the new NPV of the project?

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5.) Consider again the Sport Hotel example and Example 9.1. Suppose that if the franchise is accepted the value of the hotel is not $8 million but instead $8.50. Everything else, including first year expenses, is the same as shown in the example. Incorporating the real option, what probability of the franchise being granted would represent a "fair investment?" (that is, a probability such that any higher value would create a positive expected value)

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