Directions: Please answer all questions on a separate piece of paper. Show

all work. For any problems dealing with the time value of money, use of the

tables (present and future values, lump sum and/or annuity) is an option you

may employ for those problems which permit such use.

8. Anna Taylor buys a machine for her business. The machine costs $150,000.
Anna estimates that the machine can produce $40,000 net cash after-tax inflow
per year for the next five years. Her cost of capital is 12 percent. What is the
approximate net present value?
9. George Williams buys a machine for his business. The machine costs
$150,000. George estimates that the machine can produce $40,000 in net cash
after-tax inflow for the next five years. George's cost of capital is 10 percent.
What is the approximate internal rate of return (IRR) for this investment?
(Do NOT interpolate; simply state where in the table the IRR falls--i.e., between
what interest rates).
10. Sam Jones has an engineering firm. He wants to build a new headquarters
building. The building will cost $1,500,000. He will put down $1,050,000 and
have the bank finance the remainder at prime (8.5%) plus 2 percent, for a total of
10.5%. Sam will withdraw the money for the down payment from his mutual
fund account, where he has earned 13% for the last ten years. What is Sam's
weighted average cost of capital?
11. BONUS: Refer back to question 9. Assume the same information provided
there. What is George Williams' payback period for this investment?