1. Assume that Hamilton Museum knows that the most that it can earn is 5.2%, compounded annually. How long (in years) will it take its $450,000 investment to grow to $675,000? Round your answer to the nearest whole number (e.g. 2 years).
2. Jefferson Company reprints old manuscripts. They could either rent or buy a machine to increase their factorys production capacity. They can rent the machine for its expected life of 15 years for 180 payments of $1,500, due at the beginning of each month. The appropriate annual discount rate for the payments is 5.6%. At what purchase price should Jefferson be indifferent between renting or purchasing the machine?
3. Adams, Inc. issues a series of $100,000 bonds on January 1, 2020. The bonds pay interest semiannually on July 1 and January 1 of each year at the rate of 4% per year and mature in 10 years. If investors decide that 3.6% per year is an appropriate interest rate for the Adams bonds, how much will they be willing to pay for each bond?
4. The Hamilton Museum would like to invest $450,000 now in order to have $675,000 available 5 years, at which time it hopes to build a new wing on the museum. At what interest rate, compounded annually, would the museum need to invest the funds to achieve this goal? (Round your answer to the nearest tenth of a decimal, e.g. 3.5%.)
5. Washington Corporation is attempting to determine whether to purchase a new machine for its factory. The initial cost of the machine is $2,500,000. The company intends to pay cash for the machine. The firm estimates that the machine will generate cash flows, net of operating costs, of $750,000 for the first two years and $500,000 per year in years three through five. The machine is expected to last for five years and will have no value at the end of its useful live (i.e. no salvage value). The firm uses a 6.4% annual rate to discount its cash flows. Assume the cost of the machine is incurred at the beginning of the first period (1/1/2019) and the cash inflows generated by the machine are received at the end of the first (12/31/2019) through fifth (12/31/2023) years of the machines useful life. Should the firm purchase the machine? Support your answer with calculations.