Show brief solution

1.The Seattle Corporation has been presented with an investment opportunity which will yield end-of-year cash flows of $30,000 per year in Years 1 through 4, $35,000 per year in Years 5 through 9, and$40,000 in Year 10. This investment will cost the firm $150,000 today, and the firm's cost of capital is 10 percent. What is the NPV for this investment?

• $135,984

• $18,023

• $219,045

• $51,138

2. Martin Fillmore is a big football star who has been offered contracts by two different teams. The payments (in millions of dollars) he receives under the two contracts are listed below. Fillmore is committed to accepting the contract which provides him with the highest net present value (NPV). At what discount rate would he be indifferent between the two contracts?

Team A Team B

Year Cash Flow Cash Flow

0 $8.0 $2.5

1 4.0 4.0

2 4.0 4.0

3 4.0 8.0

4 4.0 8.0

• 10.85%

• 11.35%

• 16.49%

• 19.67%