Question
1) Bank offers its customers semiannual compounding of savings while its competitors onlyoffer annual compounding.Laura decides to buy a $5,000 certificate of deposit paying 4%
1)
Bank offers its customers semiannual compounding of savings while its competitors onlyoffer annual compounding.Laura decides to buy a $5,000 certificate of deposit paying 4% for 4 years.
a) How muchmoremoney does Laura earns from Bank ?
b) FV Final amount of CD with annual compounding ?
c) Final amount of CD with quarterly compounding ?
Additional interest earned:
2)
Company buys a heavy duty forklift for its warehouse operations.This equipment costs $80,000.The dealer offers company the opportunity to pay off the financing loan in 5 annual payments or60 monthly payments, at Company's option.The interest rate is 12%.
Which option is better?
Annual payment if paid in 5 installments ? A
Monthly payment if paid in 60 installments ?
Annual total of 12 monthly payments: B
Extra amount by paying annually (A - B)
3)
Cosmetic Company is building a new factory which will cost $32.4 million today.Sales from this new factory areexpected to be $8 million the first year, $15 million in Year 2 and $22 million in Year 3.Eagle plans to sell common stock to pay for the factory, and investors require a 16% return.
Is the factory a good investment?
( USE A TIMELINE AND TREAT EACH CASH FLOW SEPARATELY.)
Factory cost (show as negative)
Present value of:
Year 1 profit?
Year 2 profit?
Year 3 profit?
Total PV of profits?
Net profit on factory investment ?
Is this a good investment?
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