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You are presented with 5 investment options: Option 1: A contract that will pay you $1,000 at the end of year 1 and year 2,

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You are presented with 5 investment options: Option 1: A contract that will pay you $1,000 at the end of year 1 and year 2, $500 at the end of year 3 and 4, nothing at the end of year 5, and $1,000 at the end of year 6 and year 7. Option 2: A $20,000 face value bond that will pay you an annual coupon of $360 over the next 10 years. Option 3: A $30,000 face value bond that has a 1% annual coupon rate, paid semi-annually over the next 10 years. Option 4: A stock portfolio that pays a constant total dividend of $320 annually for a very long, undetermined period of time. Option 5: A cash prize that pays you an annuity due of $2550 for 7 years. Assume your personal cost of capital is 3%/year. 7 (10 points) If your personal cost of capital is 3%/year for the first 3 years, then changes to 5%/year, what is the present value of Option 3? Canon Inc. is considering the CI-700 camera project with the following information: Duration of the project: 6 years. From Year Oto Year 5. Key estimates for the project: Item R&D cost (sunk cost) Equipment Investment Cost Pilot Testing Cost Ramp-up Cost Marketing and Support Cost Amount Time of occurrence S300 Prior to project start thousand $2.5 million Year 0 $100 Year 0 thousand Si million Year 0 S500 Year 1 to Year 5 thousand year S400/cam Year 1 to Year 5 Year 1 $900/cam Year 1 2%/year Year 2 to Year 5 4,000,000 Year 1 to Year 5 cameras year S50,000 End of year 3 21% Year Oto Year 5 5%/year Year Oto Year 5 20% total Year 1 to Years revenue Unit Production Cost Inventory/Sales ratio Selling price Annual price growth rate Expected annual sales/production 5% Maintenance Cost (pretax) Corp income tax rate Cost of capital (discount rate) Sales credit to customer Depreciation method: double declining (starting from Year 0)

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