Q1.

A 10-yr project has an initial cost of $300,000 for fixed assets. The fixed assets will be depreciated to a $0 book value using a 20-yr straight line depreciation method.

Each year, annual revenue is $40,000 and cost is $10,000.

After 10 years, you will terminate the project. You expect to sell the the fixed assets for $250,000.

The project is financed by 30% equity and 70% debt. The required rate of return on equity is 12% and the borrowing cost is 4%.

Assume the tax rate is 25%.

What is the project's NPV?

-14,735

5,027

11,405

25,229

Q2. You visited Switzerland over summer and brought back 227.56 swiss francs to the United States. How many U.S. dollars will you get, if you exchange your swiss francs for U.S. dollars? The exchange rate is 1 U.S dollar = 0.982 swiss francs.

Hint: You are converting swiss franc into USD.

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