1. Our newly constructed retail space is projected to need a face lift in 7 years to keep up with changing tastes. Our projections are that the cost will be $2.5 mil. If we set aside a reserve for replacement our best return prospects for a safe investment (i.e. little risk to principle) suggest a 3% annual interest rate. How much should we deposit annually into that reserve account (sinking fund problem)? Actual amount and Sinking fund factor?
2. We have property that is projected to generate cash flows of $100,000 over this first year of operations. Our projected growth rate in those flows is constant at 5% over the 5 year holding period. What is the NPV of those cash flows discounted at 12%? Initial outlay is $300,000. Net Present value of investment?