If you invest $7,200, what is your rate of return if you will receive the following cash flows at the end of these years:  Yr. 1 - $1,500; Yr. 2 - $2,000; Yr. 3 - $2,000; Yr. 4 - $4,500?


2. What would you be willing to pay (now) for the following year-end cash flows if your required return is 9%?

 

Year 1             3,200

Year 2             4,400

Year 3             2,200

Year 4             3,300


3. If you invest $5,000, what is your rate of return if you will receive the following cash flows at the end of these years: Yr. 1. 2,000; Yr. 2. 2,000; Yr. 3. 2,000; Yr.4 4,000?

4. What would you be willing to pay for the following year end cash flows if your required return is 10%?

 

Year 1             2,000

Year 2             1,000

Year 3             2,000

Year 4             1,000

5. If you invest $5,500, what is your rate of return if you will receive the following cash flows at the end of these years:  Yr. 1 $1,000; Yr. 2 $1,100; Yr. 3 $1,200; Yr. 4 $1,300; Yr. 5 $3,700?

6. What would you be willing to pay (now) for the following yearend cash flows if your required return is 8.25%?

 
Year 1             5,000

Year 2             4,000

Year 3             3,000

Year 4             2,200

7. Project X has a cost of $90,000 and provides the following annual earnings: year 1 $35,000; year 2 $25,000; year 3 $175,000; and year 4 $11,000. What is your internal rate of return?


9. A firm utilizes a strategy of capital rationing, which is currently $375,000 and is considering the following two projects: Project A has a cost of $335,000 and the following cash flows: year 1 $140,000; year 2 $150,000; and year 3 $100,000. Project B has a cost of $365,000 and the following cash flows: year 1 $220,000; year 2 $110,000; and year 3 $150,000.

 
 A. Using a 7% rate of return, what is the net present value of project A?


 B. Using a 7% rate of return, what is the net present value of project B?

 C. Using a 7% rate of return, which decision should the financial manager make?


10. Technology Corp. is considering a $238,160 investment in a new marketing campaign that it anticipates will provide annual cash flows of $51,000 for the next five years. What is the internal rate of return for this project?