1. A clothing manufacturer is trying to decide which of two machines to use in production of a new sweatshirt line. Assume that 10% is the appropriate discount rate for this project.

Here are the details:

Machine #1 costs $500,000 and produces annual cash flows of $250,000 per year at the end of each year. It has an expected life span of 6 years and a salvage value of $0.

Machine #2 costs $300,000 and has a 2-year life span. However, it is much more efficient and produces annual end of year cash flows of $450,000. It has no salvage value.

To do: Create a cash flow table (see section 5-3) and calculate the equivalen annuity cash flow (EAC) for each macine. Which machine is better?

2. You want a new car, but aren't sure whether to lease or buy. Here are the terms:

Lease	Purchase
N = 36 months	Price: $19,995
PMT = $249/month	interest rate = 1.9%
Also: 1999 due at signing	N = 36 months
	Value at end of 36 months = $12,820

To do: Create a cash flow table that shows the cash flows for the purchase as well as for the lease. Calculate the differential cash flows and find their IRR. Which is the better deal, leasing or buying? Explian your answer.

Hints: See section 3-5 of the text for guidance; the IRR that you calculate will be IRR/month, remember to change it into IRR/year.

3. You loan $2000 to your cousin who is starting a business. The loan agreement specifies that she will repay you the principle plus 4% interest in one year. If the inflation rate is 3% this year, answer the following:

How much will you be repaid in nominal terms?

How much will you be repaid in real terms?

What is the real interest rate of this loan?

4. You just got a job that pays you $30,000 per year. This job doesn't have much room for advancement, but does promise youa 3% standard of living adjustment per year. If you keep this job for 10 years, what will you real salary (adjusted for inflation) be at the end of year 10 if the average rate of inflation is 3.37%? What if the average inflation rate was 1.5%? 4.5%?

Requirement is that we use ecel with formula text....Thank you Chegg!