7) You are considering buying a car and have 2 options. You can (a) buy the car for $25,500 today and you would receive a salvage value (or scrap value) of $4,000 in 7 years. You could also (b) lease the car for 7 years with $400 beginning of the month payments AND a special one-time payment of $700 today (upfront). If we assume the cost of money is 8% compounded annually, DCF and determined which is cheaper.

(4 marks-16.1)

a.DCF Buy option

b.DCF Lease option

8) A contract is estimated to yield net returns (inflow) of $8,000 quarterly for 10 years. To secure the contract, an immediate cash outlay (outflow) of $110,000 is required today and a second outlay of $84,000 in 7 years is required. If interest is 11% compounded annually, find the Net Present Value (NPV) of the project. (5 marks-Ch16.2)

a) PV of inflows

b) PV of Outflows

c) Final NPV of project