Question

# 1) A company has two investment possibilities, with the following cash inflows: Investment Year 1 Year...

1) A company has two investment possibilities, with the following cash inflows: Investment Year 1 Year 2 Year 3 A \$1,400 1,600 1,800 B \$1,300 1,300 1,300 If the firm can earn 7 percent in other investments, what is the present value of investments A and B? Use Appendix B and Appendix D to answer the question. Round your answers to the nearest dollar. PV(Investment A): \$ PV(Investment B): \$ If each investment costs \$4,000, is the present value of each investment greater than the cost of the investment? The present value of investment A is the cost. The present value of investment B is the cost.

9)

 eBook Problem 7-09 Inflation is a general increase in prices and may be measured by the Consumer Price Index (CPI). Use Appendix A to answer the questions. In Year 1 the CPI was 100; 30 years later, it was 230. What was the annual rate of inflation? Round your answer to the nearest whole number.   % Nancy and Pam both currently earn \$100,000. If the annual rate of inflation is 4 percent, how much must each earn after eight years to maintain their purchasing power? Round your answer to the nearest dollar. \$   Your parents bought a home for \$50,000 in Year 1 and sold it in Year 31 for \$280,000. What was the annual rate of price increase over the 30 years? Round your answer to the nearest whole number. 10) Tuition costs at various colleges vary from \$15,000 to \$30,000 annually. These tuitions are expected to increase over time. If the annual rate of increase is 2 percent, what will be the new range in tuition costs in twelve years? Use Appendix A to answer the questions. Round your answers to the nearest dollar. The range at 2 percent is \$   - \$   . If the rate doubles from 2 to 4 percent, what will be the range in tuition costs after twelve years? Use Appendix A to answer the questions. Round your answers to the nearest dollar. The range at 4 percent is \$   - \$   .

1.

Value of Investment A = 1400/(1.07) + 1600/(1.07)2 + 1800/(1.07)3

Value of Investment A = \$4,175.25

Value of Investment B = 1300/(1.07) + 1300/(1.07)2 + 1300/(1.07)3

Value of Investment B = \$3,411.61

If Cost is \$4000

Value of Investment A = \$175.25

Value of Investment B = -\$588.39

9.a.

FV = PV(1+r)t

230 = 100(1+r)30

r = 2.82%

9.b.

Amount to be earned after 8 years at 4% inflation rate,

FV = 100000(1.04)8

Amount to be earned = \$136,856.90

9.c.

FV = PV(1+r)t

280000 = 50000(1+r)30

r = 5.91%

10.

Range of tuition fee now = 15,000-30,000

After 12 years at 2% interest rate,

Range 1 = 15000(1.02)12

Range 1 = \$19,024

Range 2 = 30000(1.02)12

Range 2 = 38,047

Range is 19024-38047

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