Question $1$: $5$ marks

I$-$SEE$-$U Inc., a maker of CCTV cameras, is considering a hardware

marketing chain to sell its cameras. As per the deal,I$-$SEE$-$U will be

paid $$35,000$ and $$10,000$ at the end of years $1$ and $2$ and to make

annual year$-$end payments of $$5,000$ in years $3$ through $9.$ A final

payment of $$20,000$ would be due at the end of year $10.$

A second company has offered to market the cameras for a one$-$time

payment of $$80,000$ right away.

If I$-$SEE$-$U uses a $12\%$ required return, Which offer should it accept?

Support your asnwer with relavent calculations.

Question $2$: $5$ marks

You have decided to endow your favorite university with a scholarship.

It is expected to cost $$15,000$ per year to attend the university into

perpetuity. You expect to give the university the endowment in $5$ years

and will accumulate it by making equal annual $($end$-$of$-$year$)$ deposits

into an account.

The rate of interest is expected to be $8\%$ for all future time periods.

a$)$ How large must the endowment be$?$

b$)$ How much must you deposit at the end of each of the next $5$ years

to accumulate the required amount?

$3$

Question $3$: $20$ marks

Paul Atreides wants to save money to meet three objectives. First, he

would like to be able to retire $20$ years from now with retirement

income of $$15,000$ per month for $20$ years, with the first payment

received $20$ years and $1$ month from now. Second, he would like to

purchase a cabin in Rivendell in $10$ years at an estimated cost of

$$100,000.$ Third, after he passes on at the end of the $20$ years of

withdrawals, he would like to leave an inheritance of $$100,000$ to

Chani, his girlfriend. He can afford to save $$3,000$ per month for the

next $10$ years. If he can earn an $10$ percent EAR before he retires and

an $9$ percent EAR after he retires, how much will he have to save each

month in years $11$ through $20?$

Note:

To provide coherence and organization to your work, arrange your work

for this question as follows:

Step $1$: Convert both EARs to annual nominal rates

Step $2$: Compute the amount needed at the $20-$year mark from now

Step $3$: Compute the amount in hand at the $10-$year mark from now

Step $4$: Compute the amount still required at the $10-$year mark

Step $5$: Compute the shortage$/$surplus$,$ if any, and compute the required

monthly savings between years $11$ through $20.$