Problem 1. Beckham is considering buying a new car. He can take out a 48-month car loan for $8239.05 with a 14.2% annual interest rate. He then needs to make a constant loan payment each month.

(a) Calculate the monthly payment that Beckham will need to make on his car loan. (b) What is the total amount that Beckham would have paid on his loan in 48

months?

Problem 2. Candy Messinger is searching for good investments to place her firm's capital in. She is the CEO and president of GSM Consulting and must decide which one of the following projects to invest in. Given below are the projects' cash flows; all require the same initial investment of $2 billion ($2000 million). The appropriate discount rate for all projects is 12%.

Please check the attachment for Question 2's table and Question 3.

Guanghua School of Management Course No.: 02833430 Corporate Finance, Fall 2017 Homework 1 Due in class on September 26th Problem 1. Beckham is considering buying a new car. He can take out a 48-month car loan for $8239.05 with a 14.2% annual interest rate. He then needs to make a constant loan payment each month. (a) Calculate the monthly payment that Beckham will need to make on his car loan. (b) What is the total amount that Beckham would have paid on his loan in 48 months? Problem 2. Candy Messinger is searching for good investments to place her firm's capital in. She is the CEO and president of GSM Consulting and must decide which one of the following projects to invest in. Given below are the projects' cash flows; all require the same initial investment of $2 billion ($2000 million). The appropriate discount rate for all projects is 12%. Initial Investment Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Project 1 $-2,000 330 330 330 330 330 330 330 1,000 0 0 0 0 0 0 0 Project 2 $-2,000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 10,000 Project 3 $-2,000 280 280 280 280 280 280 280 280 280 280 280 280 280 280 280 (a) Calculate the NPV for each project and rank the projects based on their NPV. (b) How does your answer to (a) change if the discount rate decreases to 10%? (c) Suppose the cash flows for all projects are now growing at the rate of 5% (so starting from year 1, the cash flow would be c(1+g), etc. Be careful that the growth starts from year 1, not year 2). Still assuming a discount rate of 12%, what is the NPV for each project and how do you rank them based on their NPV? Problem 3. LeBron and Kobe are twin brothers aged 65 right now. Thirty-five years ago, LeBron started a savings account, putting $2000 deposit in the account each year. The savings account produced returns of 10 percent per year (i.e. the interest rate on his account is 10%). After 10 years of contributions, LeBron stopped making new deposits but kept the accumulated contributions in the savings account to earn interest (so he contributed $2000 per year into the account for 10 years, then let the accumulated contributions earn interest for the next 25 years). Kobe started his own savings account 25 years ago and contributed $2000 per year every year up to now. Thus Kobe invested 2 times as much as LeBron. Kobe also earned 10 percent on his investments (deposits) per year. (so Kobe contributed $2000 per year into his account for 25 years, and the interest rate on his account is also 10%.) (a) What are the values of LeBron's and Kobe's savings accounts right now? (Hint: if you cannot figure it out, use the formula that if you invest $1 every year for T years at the (interest) rate of r per year, you will get 1 (1 + ) =1 (1 + ) 1 = at the end of year T) (b) What personal finance lesson does this exercise suggest? (explain in less than 50 words)