1. Goal to have 1,500,000 in 25 years for retirement. Anticipate an interest rate of 10% compounded annually, with deposits at the beginning of each of the next 25 years. First payment is today. How much must you deposit each year to meet the goal?
2. You are borrowing $750,000 to invest in commercial real estate property. The loan requires quarterly payments, each made at the end of the quarter. The loan period is 5 years, and the annual interest rate is 8%. Your first payment is one quarter from today. What will your payment be?
3. A company is considering an expansion project, and it requires a new machine. The machine has a purchase price, plus delivery and installation of $300,000. Net working capital of $25,000 will also be required. For the first 4 years of the project, the machine is expected to generate revenues of $75,000, and cash operating expenses of $30,000.
For the last 6 years of the project, the revenues are expected to be $95,000, while the cash operating expenses are expected to be $40,000. The company uses straight line depreciation. The useful life of the machine is 10 years. The machine has an expected salvage value of $50,000 t the end of the project. The company's tax rate is 40%, and has a cost of capital of 12%.
What are the Net Investment and the Net Cash Flows for the project? What is the NPV for the project?
With good explanations and calculations, the problems are solved.