Assume all cash inflows occur at the end of the period. The free advice department advocates that you draw a timeline for each of these problems to assist you in the proper set up of the cash flows.

1. You have a rich Aunt Ernestine, who recently passed on. In her will, she stipulated you would receive $1,000 a year through age 25; then you will receive $2,500 a year through age 30, then you are to get $5,000 a year through 40 years of age, at which time your payments will cease. You just had your twentieth birthday today (hint: your first cash flow occurs one year from now on your twenty-first birthday). At your twentieth birthday party, a woman offered you $30,000 for the right to your inherited cash flow. Assuming an opportunity cost of eight percent, what is the difference between the amount the woman offers you and the present value of your cash flows? Should you take the offer?

2. Canine Corporation is planning on investing in a line of breed stationery. They expect sales to be $50,000 for the first two years, then drop to $30,000 for the next three years and then decline to $15,000 for the remaining five years of the product's lifecycle. Management has determined the firm would have to invest $180,000 at the beginning of the project's life for a new printing press and miscellaneous equipment. The firm's opportunity cost for investment is an annual rate of 12 percent. What is the net present value (NPV) of the firm's investment? Should the firm invest in this project? Explain why or why not.

3. Dr. Sheldon Cooper and his pals on Big Bang Theory have created a new talk show for nerds. They are interested in syndicating the talk show so their fellow nerds around the country can enjoy their antics. With the help of their neighbor, Penny Nolastname, the nerds have estimated the following cash flows. $200,000 in year one; $300,000 years two through six; $500,000 in years seven through ten; $200,000 years eleven and twelve, and $100,000 in year thirteen. The startup cost is $250,000, and the nerds' investment portfolio is currently earning an annual rate of five percent. What is the net present value (NPV) of Dr. Cooper's investment? Should Dr. Cooper and his friends sign the contract? Explain why or why not.

4. Challenge Problem: Load Off Your Mind moving company is considering investing in a new moving van to expand its business operations. The cost of the new van is $75,000. The firm is currently earning an annual rate of eight percent on their investment portfolio. The company expects to have the following cash flows from the expansion project; $33,000 in year one; $35,000 in years two through seven; and $27,000 in years nine through twelve. The firm will have to rebuild the van's in year eight, which will cost the company an additional cash outflow of $41,000. What is the net present value (NPV) of Load Off Your Mind's investment? Should the firm invest? Explain why or why not.

5. Challenge Problem: Your uncle gave you two IBM bonds (each bond is worth $1,000 each), and you expect to receive $2,000 ($1,000 for each bond) in five years when these bonds mature. Also, you will receive $240 annual interest payments ($120 for each bond) at the end of each of the next five years until the bonds mature. What is the present value of

your investment? Assume your investment opportunity cost is an annual rate of 11 percent.