• 1. In the context of present value analysis, what is the discount rate? How does the discount rate affect the present value calculation? If the present value of a future return is calculated using a discount rate of 8%, what can we expect the present value analysis to reveal if the discount rate is changed to 10%? What if the discount rate is changed to 6%?
• 2. Homemade Bread Company is considering building a new production facility that will cost $46,500. The expected cash inflow from this new facility is estimated to be $4,600 per year. Calculate the payback period for this investment. What does the payback period calculation not tell Homemade Bread Company that it needs to know?
• 3. ABC Company is considering an investment in a machine that will have a useful life of six years with a salvage value at the end of $12,000.Assuming that ABC has a minimum rate of return of 12%, what is the present value of that salvage value?
• 4. The Donut Shoppe is considering buying a new donut machine for a total of $110,110. The Donut Shoppe estimates that this new machine will increase its cash inflow each year, after expenses, by $22,000. This machine will have a useful life of 10 years and will have no salvage value. Ignoring the effects of taxes, what is the machines internal rate of return, calculated to the nearest whole percentage?