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?