Please solve as soon as possible with very brief work and the final answer for each part
illinois Tech, a not-for-profit educational institution (therefore it is not subject to income taxation), is trying to purchase a new course delivery system. The system will cost $8,000,000, will last for eight years, and will have no residual value. Illinois Tech uses the straight-line method of depreciation (to a zero residual value) in its annual financial reports. This new system will allow the university to offer Internet courses bringing in substantial new tuition revenues. It will also allow courses to be taped so that, once taped, courses can be used over the life of the system, and faculty can be "retired." These two items will contribute about $1,600,000 of extra cash flow (net of operating expenses) to "Tech" at the end of the first year, with the cash flows increasing annually thereafter at the 3% rate of inflation. The university requires an 8% real rate of return on such investments. Required: Answer the questions below. a. Using nominal cash flows, find the net present value of this investment. (6 points) b. Using real cash flows, find the net present value of this investment. (6 points) C. For which set of cash flows, nominal or real, is this a better investment? Explain! (3 points) Part B (5 points) A machine that lasts ten years has the following net cash outflows: $45,000 is the cost of purchasing the machine; $22,500 is the annual year-end operating cost; and $13,500 is the year-ten residual value. Thus, the cash flow at year ten, Co is only-$9,000 (a net cost). C -$45,000 -$22,500 -$22,500 -$22,500 -$22,500 -$22,500 +$13,500 The cost of capital is 12%. The company intends to replace this machine in kind every ten years in perpetuity (that is, continually replacing this machine with a similar one forever). What is the present value (PV) of the costs of operat- ing a series of such machines in perpetuity. Ignore income taxes and inflation -- but find the Present Value of the perpetuity correctly!!! Parts (5 points) Your holiday Adriatic Cruise was great, but it unfortunately ran a bit over budget. All is not lost, because you just received an offer in the mail to transfer the $19,500 balance from your current credit card, which charges an annual rate (APR) of 15.0%, to a new credit card charging a rate of 8.4% (APR). If you had planned on paying off the current credit card in 60 months, how much faster could you pay off the balance by making your planned monthly payments with the new card instead of the old one? illinois Tech, a not-for-profit educational institution (therefore it is not subject to income taxation), is trying to purchase a new course delivery system. The system will cost $8,000,000, will last for eight years, and will have no residual value. Illinois Tech uses the straight-line method of depreciation (to a zero residual value) in its annual financial reports. This new system will allow the university to offer Internet courses bringing in substantial new tuition revenues. It will also allow courses to be taped so that, once taped, courses can be used over the life of the system, and faculty can be "retired." These two items will contribute about $1,600,000 of extra cash flow (net of operating expenses) to "Tech" at the end of the first year, with the cash flows increasing annually thereafter at the 3% rate of inflation. The university requires an 8% real rate of return on such investments. Required: Answer the questions below. a. Using nominal cash flows, find the net present value of this investment. (6 points) b. Using real cash flows, find the net present value of this investment. (6 points) C. For which set of cash flows, nominal or real, is this a better investment? Explain! (3 points) Part B (5 points) A machine that lasts ten years has the following net cash outflows: $45,000 is the cost of purchasing the machine; $22,500 is the annual year-end operating cost; and $13,500 is the year-ten residual value. Thus, the cash flow at year ten, Co is only-$9,000 (a net cost). C -$45,000 -$22,500 -$22,500 -$22,500 -$22,500 -$22,500 +$13,500 The cost of capital is 12%. The company intends to replace this machine in kind every ten years in perpetuity (that is, continually replacing this machine with a similar one forever). What is the present value (PV) of the costs of operat- ing a series of such machines in perpetuity. Ignore income taxes and inflation -- but find the Present Value of the perpetuity correctly!!! Parts (5 points) Your holiday Adriatic Cruise was great, but it unfortunately ran a bit over budget. All is not lost, because you just received an offer in the mail to transfer the $19,500 balance from your current credit card, which charges an annual rate (APR) of 15.0%, to a new credit card charging a rate of 8.4% (APR). If you had planned on paying off the current credit card in 60 months, how much faster could you pay off the balance by making your planned monthly payments with the new card instead of the old one
