Chapter 12B Fun & Exciting Exercises ALWAYS ROUND FINAL ANSWERS TO 2 DECIMAL PLACES!! SHOW ALL WORK AND BOX ALL FINAL ANSWERS 1) Smooth Shaved Ice Co has identified an investment project with the following cash flows: Year Cash Flow 1 $ 900 2 S 700 3 $2,800 4 $3,700 What is the present value of these cash flows (in total) if the discount rate is: a) 6 percent b) 15 percent C) 30 percent 2) Investment X offers to pay you $4,000 per year for 10 years, whereas Investment Y offers to pay you $8,000 per year for 4 years. What is the present value of each investment if the discount rate is: a) 5 percent b) 15 percent 3) Betty Bucks has identified an investment project with the following cash flows: Year Cash Flow 1 $3,300 $4,400 3 $5,500 4 S6,600 What is the future value of these cash flows (in total) if the interest rate is: a) 6 percent b) 12 percent c) 24 percent 4) An investment offers $12,000 per year for 25 years. If the required return is 8 percent, what is the value of the investment? 5) What would the value of the investment from Question 4 be if the payments occurred for a) 40 years b) 75 years c) Forever 6) Your company will generate $75,000 in revenue each year for the next eight years from a new information database. The computer system needed to set up the database costs $325,000. If you can borrow the money to buy the computer system at 6.75 percent annual interest, can you afford the new system and by how much? 2