Both net present value (NPV) and the internal rate of return (IRR) have a reinvestment assumption.

Required:

A. State the assumption for each method.

B. One of the advantages of the NPV method is that users can adjust for risk considerations. Explain how this is done.

4. Future value and present value are two key business tools. Required: Ignoring income taxes, answer the following independent questions: A. Suppose that you invest $4,000 today in an account that bears interest at the rate of 8%. What will your investment grow to in five years? B. Your best friend won the state lottery and has offered to give you $5,000 in seven years, after he has made his first million. You figure that if you had the money now, you could invest it at 10% annual interest. What is the value today of your friend's future gift? C. Suppose that you invest $1,200 per year in an investment that provides a 6% return. What will be the value of your investment in four years? D. Suppose that your best friend won the state lottery and promised to give you $5,000 per year for eight years. The first payment will be made at the end of 20x1. Using a 10% discount rate, what is the value of these payments at the beginning of 20x1?