1. Assume you are considering buying a tractor and mower to do custom mowing. The machine costs $22,000.00, and has an expected salvage value of $5,000.00 at the end of an expected 10 year life. You think you can generate gross sales of $6,000.00 per year, and you think cash expenses will average $1250.00 per year for the first 5 years, and $1,925.00 per year for the second five years of the machines life as you expect to have more repair costs. Calculate both the Payback Period, and the Simple Rate of Return for this proposed investment, AND explain why the simple rate of return may provide a misleading answer in this instance. 2. After graduation you will be hounded by insurance agents interested in selling you "whole life" or "universal life" insurance. Assume (realistically) that there is a plan which you pay $500 per month for 20 years, and then you have your ($100,000 life insurance policy "paid up" for life (you never have to pay any more premiums, but you are guaranteed a $100,000 payout when you die). You make the first payment right now, and then at the end of each month for a total of 240 payments. You want to compare the value of that plan to buying term insurance which costs you $112 per month for a $100,000 policy with the rate guaranteed for 20 years in other words you would pay the $112 monthly premium for 20 years, then drop the policy and your coverage would end). The relevant comparison is to look at investing the difference (between the $500 and the $112) and see how long it would take you to accumulate the $100,000 in an account so you could "self-insure". Assume you can earn 7.5% (annual) on the invested difference (but remember you are investing and compounding monthly). How long will it take you to accumulate $100,000? How much will you have accumulated at the end of 20 years? Solve the problem using the "Brute Force Method for finding Future Values" in a spreadsheet Should you buy the universal life, or buy the term insurance then self-insure