5. Joe Broke recently agreed to purchase new furniture from a local retail outlet under the following contractual conditions. On the expectation that his income would rise in the near future, he purchased $15,000 of furniture on credit. Under the terms of the agreement to would make no payment for the first year though interest would accrue. After the first year he would then begin to pay off the loan by making 24 equal monthly payments of $793.07 with the same rate of interest being charged his account. What is the nominal annual rate? 6. Bob Plant has been planning his retirement. When he was 30 years of age he began putting $3,500 a year into a retirement plan. The plan invests the money in a stock market fund which has historically generated an annual rate of return of 10 percent on average. Bob expects this average to continue into the future. When Mr. Plant turns 60, he plans to switch all of his retirement funds into a bond fund which earns 7 percent on average. He will continue to make his annual contributions to the bond fund until he retires at the age of 65. How much money will Mr. Plant have to retire on when he turns 65? How much could he withdraw from the account each year for the next twenty years assuming that he continues to earn 7 percent per year and that he begins making withdrawals on his 65th birthday? 7. The president of Real Time, Inc. has asked you to evaluate the proposed acquisition of a new computer. The computer's price is $40,000, and it falls into the MACRS 3-year class. Purchase of the computer would require an increase in net working capital of $2,000. The computer would increase the firm's before-tax revenues by $20,000 per year but would also increase operating costs by $5,000 per year. The computer is expected to be used for 3 years and then be sold for $25,000. The firm's marginal tax rate is 40 percent, and the project's cost of capital is 14 percent. What is the net investment required at t = 0? Calculate the net cash flows in each period. What is the net present value of the project? What is the internal rate of return? d. You just won a $10 million grand prize in a contest where the proceeds are payable in annual payments of $250,000 per year for each of the next 40 years beginning today. Suppose you can earn an 8 percent rate of return on your investments and someone offers you $3.2 million for the cash flow stream. Is this offer a good deal from your perspective? Demonstrate