Problem 1 (3 points) Suppose you have a project which requires an initial investment (in a piece of equipment) of $200,000. The equipment has a CCA rate of 30% (the usual half-year applies to the CCA calculation). The project will last 3 years. At the end of year 3, the equipment will be sold for $35,000 (after tax). The project will reduce production cost by $110,000 per year. The initial working capital requirement is $25,000. An additional amount of $8,000 is required for year 1. All will be recovered at the end of year 3. The tax rate is 40% and the discount rate is 10%. What is the NPV? Problem 2 (2 points) Consider a security that pays you $200 when the year number is odd and and $400 when the year number is even (including year 0), starting at year 0 and lasting forever. Assuming annual interest rate of 10%, what is the year-0 value (i.e. present value) of this security? What is the year-15 value (i.e. future value) of this security? Problem 3 (2 points) How much would you pay for a security which pays $500 (the first payment coming three years from today) every three years. Payments grow by 2%. What is the year-10 value (i.e., future value) of this stream of cash flow? The discount rate is 5% per year Problem 1 (3 points) Suppose you have a project which requires an initial investment (in a piece of equipment) of $200,000. The equipment has a CCA rate of 30% (the usual half-year applies to the CCA calculation). The project will last 3 years. At the end of year 3, the equipment will be sold for $35,000 (after tax). The project will reduce production cost by $110,000 per year. The initial working capital requirement is $25,000. An additional amount of $8,000 is required for year 1. All will be recovered at the end of year 3. The tax rate is 40% and the discount rate is 10%. What is the NPV? Problem 2 (2 points) Consider a security that pays you $200 when the year number is odd and and $400 when the year number is even (including year 0), starting at year 0 and lasting forever. Assuming annual interest rate of 10%, what is the year-0 value (i.e. present value) of this security? What is the year-15 value (i.e. future value) of this security? Problem 3 (2 points) How much would you pay for a security which pays $500 (the first payment coming three years from today) every three years. Payments grow by 2%. What is the year-10 value (i.e., future value) of this stream of cash flow? The discount rate is 5% per year