(1)Your financial planner offers you two different investment plans. Plan X is a $25,000 annual perpetuity. Plan Y is a 10-year, $51,000 annual annuity. Both plans will make their first payment one year from today. At what discount rate would you be indifferent between these two plans?

(4 marks)

(2) Bill plans to open a self-serve grooming centre in a storefront. The grooming equipment will cost $325,000, to be paid immediately. Bill expects after-tax cash inflows of $67,000 annually for 7 years, after which he plans to scrap the equipment and retire to the beaches of Nevis. The first cash inflow occurs at the end of the first year. Assume the required return is 13 percent. What is the project's profitability index (PI)?

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