exercise 3

Exercise 3: Time Value of Money 6 points How much do you neet to invest in an account paving 2.4 percent annual interest on monthly compounding basis to be able to withdaw USD 20 000 after 5 years? Solution: Exercise 4: Net Present Value 12 points Consider the following three investment projects, each with different cash flows in time. Your cost of capital is 6 percent. Project 2020 2021 2022 2023 2024 2025 -8000 3000 4000 2000 2000 1500 B / -9000 2000 3000 3700 4000 6000 -18000 3000 5000 6000 8000 9000 a) Calculate the net present values and intenal rates of return and index profitability for each of the projects. b) If they are independent, should any of the projects be accepted? Why? c) Which of the projects should be accepted if they are mutually exclusive? d) What is the breakeven cost of capital? Solution