1.Find the future value at the end of year 3 of the following stream of cash flows received at the end of each year, assuming the firm can earn 17 percent on its investments.

year Amount

1 3000

2 6000

3 9000

A 20724 B 20127 C 23550 D 23350

2.A ski chalet in Aspen now costs $250,000. Inflation is expected to cause this price to increase at 5 percent per year over the next 10 years before Lois and Clark retire from successful investment banking careers. How large an equal annual end-of-year deposit must be made into an account paying an annual rate of interest of 13 percent in order to buy the ski chalet upon retirement?

(a) $ 8,333 (b) $13,572 (c) $25.005 (d) $22,109

4 you are preparing to recommend a highly risky electronics manufacturing investment. Your MARK is 18%. The first alternative has a return of 21.3% and a payback of 5 years_ The second has a return of 21.1% and a payback of 3 years. Both options require the same initial investment. Which one do you pick and why?

(a) You recommend the first alternative because it has a longer payback and hence you are getting paid back for a longer time.

(b) You recommend the second alternative because it has a lower return hence it must be lower risk.

(c) You recommend the first alternative because it has a substantially higher return hence you make more money_

(d) You recommend the second alternative because it has a shorter payback hence you get paid back quicker.

5 Two mutually exclusive projects A and B have IRR (A) = 15%, IRR (B) = 14%, and IRR (A-B)= 13%. Roth projects require the same initial investment of $10,000 and have the same life of five years_ Which project should he chosen at MARR = 12%?

a) Both projects

b) Project A

c) Project B

d) Neither project