1. The cost of a new lathe is $20,000 is expected to return cash flows net of operating

costs of $9,000 per year for 5 years. Assume a cost of capital is 10%. What is the

most you should be willing to pay for this machine?

2. Assume the lathe above is financed at 10%. Create a payment schedule so that

this loan is self-financing.

3. If instead the loan above is repaid in a single payment at the end of 5 years, what

will be owed?