Question

q1. A new piece of machinery is designed to be more efficient   
Cost = $22,500 paid up front
Projected savings = $6,250 per year over 5 years
Cost of capital = 10%
a.Calculate the NPV and the IRR to determine if the project should be accepted.

b.now assume the financial strength of your organization has deteriorated and investors now require an 14% return.

q2:

An insurer projects that a single loss of $5,000 that will need to be paid at the end of three years.

a.If the insurer can earn a 4% return, what premium should be charged today?

b.If the insurer can earn a 8% return, what premium should be charged today?

Answer 1