A professional sports contract offers

$115,000

paid now,

$205,000

paid at the end of each of the

second

and

third

years, and

$700,000

paid at the end of the

fourth,

fifth,

and

sixth

years (Alternative 1). Alternatively, the contract could offer

$410,000

per year paid at the end of each of the six years (Alternative 2). If money is worth

7.7%,

which offer is preferable for the athlete?

An electronics company expects a demand of

30,000

units per year for a special-purpose component during the next six years. Net return per unit is

$5.

To produce the component, the company must buy a machine costing

$550,000

with a life of six years and a salvage value of

$50,000

after six years. The company estimates that repair costs will be

$26,000

per year during Years 2 to 6. If the required rate of return on investment is

12%,

should it market the component?