Question 1

A couple thinking about retirement decide to put aside $2,300 each year in a savings plan that earns 9% interest. In 15 years they will receive a gift of $27,000 that also can be invested.

a) How much money will they have accumulated 30 years from now?

b) If their goal is to retire with $730,000 of savings, how much extra do they need to save every year?

Question 2

Your consulting firm will produce cash flows of $130,000 this year, and you expect cash flow to keep pace with any increase in the general level of prices. The interest rate currently is 6.6%, and you anticipate inflation of about 2.6%.

a)What is the present value of your firms cash flows for years 1 through 5?

b)

How would your answer to (a) change if you anticipated no growth in cash flow?

Question 3

Your landscaping company can lease a truck for $7,500 a year (paid at year-end) for 6 years. It can instead buy the truck for $36,000. The truck will be valueless after 6 years. The interest rate your company can earn on its funds is 7%.

a.

What is the cost of leasing?

b	What if the lease payments are an annuity due, so the first payment comes immediately?