Question 1 a. Esther, Vida, and Clair were asked to consider two different cash flows: GH1000 that they could receive today and GH3000 that would be received 3 years from today. Esther wanted the GH1000 today, Vida chose to collect GH3000 in 3 years, and Clair was indifferent between these two options. Which of the three women made the right choice? Explain. . b. You bought a sachet water machine from Indie Inc. The cost of the machine was GH35,000. At that time, you asked for the payment to be deferred, and a contract was written. Under the contract, you could delay paying for the sachet water machine if you purchased the material for packaging the water from Indie Inc. You will then pay for the machine in a lump sum at the end of 2 years, with interest at a rate of 2% per quarter-year. According to the contract, if you ceased buying the packaging material from Indie Inc. at any time prior to 2 years, the full payment due at the end of 2 years would automatically become due. One year later, you decided to buy the packaging material elsewhere and stopped buying from Indie Inc., whereupon Indie Inc., per the contract terms, asked for the full payment that is due at the end of 2 years to be paid immediately. You were unhappy about this, so Indie Inc. offered as an alternative to accept the GH35,000 with interest at 10% per semiannual period for the 12 months that you had been buying the packaging material from Indie Inc. Which of the alternatives should you accept? Explain. Question 2 A new American graduate is contemplating buying a Japanese, German, or an American car. No matter the type of car, he plans to buy a new one at the end of 8 years. Japanese car will cost $30,000 and have a fuel usage of 23 Miles Per gallon (mpg) for the first 2 years, and will decrease by 3% per year thereafter. Repair cost will start at $700 per year, and increase by 3% per year. At the end of year 8, the car can be sold for $5000. Insurance cost will be $700 for the first year, increasing by 2% per year thereafter. A German car will cost $45,000 and have fuel usage of 21mpg for the first 5 years, and decrease by 1% thereafter to year 8. Repair cost will start at $1000 in year 1 and increase by 4% per year. It will have a salvage value of $7000 at the end of year 8. Insurance cost will be $850 the first year, increasing by 2% per year thereafter. The American car will cost $35,000 and have fuel usage of 20mpg for the first 3 years, and will decrease by 3% per year thereafter. Repair cost will be $800 in year 1, increasing by 4% per year thereafter. Being an American, the graduate will price the pride of owning an American car at $0.4 for every 20 miles driven, increasing by 2% per year. Insurance cost will be $800 per year increasing by 2.2% per year. The car can be sold for $5500 at the end of year 8. If the graduate anticipates driving 150000 miles by the end of year 8 and the average interest rate is expected to remain at 5% per year, which car is economically affordable based on present worth analysis? Assume fuel cost will be $3 per gallon in year 1 and increase by an average of 2% per year. Show all your workings. (20 marks) Question 3 The sales and finance team of a car company is evaluating a new proposed luxury model of its brand that will require an investment of $1Billion in a new machine for car interior decoration. Demand for the companys car is expected to begin at 100,000 units in year 1, with 10% annual growth thereafter. Production cost will be $35,000 per unit in the first year, and increase by a rate of either 3% or 5% per year as a result of wage increase. Selling price will start at $37,000 and increase by 4% of the production cost. The model will be phased out at the end of year 10. In addition, 0.3%, 2% and 1.5% of before tax profit per year will be spent on social corporate responsibility, commercial (including promotions) and recalls respectively. Assume taxes will be 30% of yearly profit and that inflation will remain at 0% per year throughout the 10 year of production. Also assume interest rate is expected to be 3% per year in the first 5 years and 5% in the last 5 years. a. Based on present worth analysis, is the proposed investment profitable if production cost increases by a rate of 3% per year as a result of wage increase? Justify your answer. b. Based on present worth analysis, is the proposed investment profitable if production cost increases by a rate of 5% per year as a result of wage increase? Justify your answer. Question 4 The CEO of Asempa farms limited is considering whether to plant this years yam with a fertilizer or go organic (i.e. without fertilizer). In case of using a fertilizer, 10kg of either the Platinum or Standard type fertilizer would be needed at the start of the planting year. The Platinum type is GH1000 per kilogram and could lead to a high yield of 30 tons or a moderate yield of 20 tons of yam at the end of the year. The Standard type is GH800 per kilogram and could also lead to ahigh yield of 15 tons or a moderate yield of 10 tons of yam at the end of the year. The Standard has fewer chemicals and would lead to tastier yam that sells for a higher price than that of Platinum. There is a probability of 0.7 that high yield would be recorded at the end of the year. Market price for yam is uncertain and depends on the type as well as the volume of yam on the market. Generally, a year of high yield results in higher volume whiles a year of moderate yield leads to moderate volume of yam on the market. Even then, there is 60-40 chance that yam from the Platinum fertilizer could sell for GH2000 or GH2400 per ton in times of high yield, and GH3000 or GH3500 per ton in times of moderate yield. The Standard fertilizer yam has a 40- 60 chance of selling for GH4000 or GH5000 per ton in times of high yield, and GH5500 or GH6000 in times of moderate yield. Organic yam would take 2 years to harvest and would require the supply of manure that can be borrowed from a local shop at a total cost of GH8,500 at the end of year 2. This could lead to a high yield of 8 tons or a moderate yield of 6 tons at the end of year 2. Prices for organic yam are quite high and will sell for GH9,000 per ton in a high yield season and GH11,000 in moderate yield season. Assume interest rate of 10% per year and answer the following questions. a. Draw a decision tree for the problem faced by the CEO indicating the probabilities of occurrence and monetary values of events. b. Advice the CEO of Asempa farms on which decision to take if he wants to make his decision based on expected monetary value technique. Show your calculations. c. Will your advice change if the total cost of manure at the end of year 2 is GH6000? Show your calculations. d. What would be Asempa farms payoff if there happens to be a moderate yield, and price of yam is GH6000 per ton? e. If the CEO of Asempa farms is risk averse, which decision do you think the CEO should opt for? Explain.