1.

Your venture has signed a new consulting contract that will require you to invest in new analytical software and a new computer. The cost of this equipment is $200,000. You will finance this investment by borrowing from the bank. You want to make your periodic payments as low as possible. You have to offers from banks. Either The loan will be for 3 years at a rate of 9%.The loan will be amortized over the three years so that at the end of year 3 your loan balance will be $0 or The loan will be for six years at a rate of 10% an again the loan will be fully amortized over the six year period.

The loan with the lowest payment is 6 years at 10%.

True

False

2.

Your venture has signed a new consulting contract that will require you to invest in new analytical software and a new computer. The contract will generate the cash flows at specific times. You decision rule is to only accept projects that have an internal rate of return that exceeds 12%.

dates	cash flows
12/10/2022	-$12,000.00
4/10/2026	$4,000.00
8/10/2029	$4,000.00
12/10/2030	$4,000.00
4/10/2031	$4,000.00

This project should be accepted

True

False

3.

principal	time	returns
$200,000	0
	1	5.3500%
	2	5.7000%
	3	6.0500%
	4	6.4000%
	5	6.7500%
	6	7.1000%
	7	7.4500%
	8	7.8000%
	9	8.1500%
	10	8.5000%

You have $200,000 today. There is a project that you believe will return increasing returns over the next ten years. In fact you have come up with the return schedule that you believe is the best forecast of rates of return on your investment. Based on these returns the FV of your $200,000 investment at the end of 10 years will be between $390,500 and $390, 510.

You make the investment at time zero and first interest is earned over the fist year so it is earned from time 0 to time 1. The FVSCHEDULE starts at time 1 not time 0.

True

False