Problem 1.

Annual cash inflows that will arise from an investment are given below.

Year 1 5,000

Year 2 4,000

Year 3 8,000

Year 4 6,000

Total $23,000

Compute the present value of the cash inflows assuming a 12% discount rate.

Problem 2.

Lennox Company plans to construct a new factory 10 years from now. It is estimated the factory will cost $1,000,000 to build. What lump sum amount should the company invest now to have $1,000,000 available at the end of the 10-year period? Assume that the company can invest money at 12%.

Problem 3.

Congratulations! Youve won the lottery. Your winnings? You will receive $20,000 annually for 10 years! Assuming you can earn 10% on your investments, what is the present value of your winnings?

Problem 4.

You borrow $10,000 from the bank today and promise equal annual repayments for 10 years. Assuming a 6% interest rate, how much is each annual repayment?

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