Question
1. You would like to buy a house in 5 years and estimate that you'll need $95,000 for a down payment at that time.If you
1. You would like to buy a house in 5 years and estimate that you'll need $95,000 for a down payment at that time.If you have $60,000 already saved, and in addition, can afford to save $3,000 a year (starting one year from now, and ending in five years), what annual rate of return will you need to achieve your goal of saving $95,000? 5 points.
A) less than 6%
B) Between 6% and 7%
C) Between 7% and 8%
D) More than 8%
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2. Your answer in #1 is encouraging, because you think you can achieve an annual return of 9%, which is more than you need.How much extra money (i.e. more than $95,000) will you have in 5 years?5 points.
A) less than $10,000
B) between $10,000 and $12,000
C) between $12,000 and $14,000
D) More than $14,000
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3. Suppose that you decide to open a coffee truck in Austin, TX.Your start-up costs (born immediately) are $160,000.After that, you expect to earn $30,000 per year after all taxes and expenses, for ten years, with the first $30,000 cash flow occurring one year from now.If your discount rate is 15%, should you open up the coffee truck?[Note: you don't work in the coffee truck; this is a purely financial investment.]. 5 points.
A) No, the NPV is less than zero
B) No, the IRR exceeds the cost of capital
C) Yes, the NPV is greater than zero
D) Yes, the payback period is less than 6 years
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