02 Jan You have just turned

Q 1

Honda Motor Company is considering offering a $ 2 comma 200$2,200 rebate on its? minivan, lowering the? vehicle’s price from $ 28 comma 000$28,000 to $ 25 comma 800$25,800. The marketing group estimates that this rebate will increase sales over the next year from 49 comma 00049,000 to 67 comma 00067,000 vehicles. Suppose? Honda’s profit margin with the rebate is $ 6 comma 600$6,600 per vehicle. If the change in sales is the only consequence of this? decision, what are its benefits and? costs? Is it a good? idea?

Q 2

Suppose the current market price of corn is $ 3.64$3.64 per bushel. Your firm has a technology that can convert 1 bushel of corn to 3 gallons of ethanol. If the cost of conversion is $ 1.72$1.72 per? bushel, at what market price of ethanol does conversion become? attractive?

Q 3

Suppose the? risk-free interest rate is 3.6 %3.6%.

a. Having $ 500$500 today is equivalent to having what amount in one? year?

b. Having $ 500$500 in one year is equivalent to having what amount? today?

c. Which would you? prefer, $ 500$500 today or $ 500$500 in one? year? Does your answer depend on when you need the? money? Why or why? not?

A.$ 500$500 today

$ 500$500 in one year

Does your answer depend on when you need the? money? Why or why? not????(Select the best choice? below.)

A.Yes, because if you did need the money today it is more valuable than $ 500$500.

B.No, because if you did need it you could borrow the $ 500$500.

C.Yes, because if you? didn’t need? it, it’s not worth $ 500$500.

D.No, because if you? didn’t need it then the $ 500$500 can be invested and you could have more than $ 500$500 in one year.

Q 4

Your firm has a? risk-free investment opportunity with an initial investment of $ 162 comma 000$162,000 today and receipts of $ 178 comma 000$178,000 in one year. For what level of interest rates is this project? attractive?

Q 5

Your firm has identified three potential investment projects. The projects and their cash flows are shown? here:???(Click on the icon located on the? top-right corner of the data table below in order to copy its contents into a? spreadsheet.)

Project

Cash Flow Today

?(millions)

Cash Flow in One Year

?(millions)

A

negative $ 14?$14

$ 25$25

B

$ 6$6

$ 5$5

C $ 25$25

negative $ 8?$8

Suppose all cash flows are certain and the? risk-free interest rate is 11 %.

a. What is the NPV of each? project?

b. If the firm can choose only one of these? projects, which should it choose based on the NPV decision? rule?

c. If the firm can choose any two of these? projects, which should it choose based on the NPV decision? rule?

A.

Project Upper CC

Your answer is correct.

B.

Project Upper AA

C.

Project Upper BB

D.

Cannot tell

c. If the firm can choose any two of these projects, which should it choose based on the NPV decision rule???(Select the best choice below.)

A.Project

Upper CC

project Upper AA

B.Project

Upper CC

and project Upper BB

C.Project

Upper AA

project Upper BB

D.Cannot tell

Q 6

What is the present value of $ 3 , 000$3,000 received

a. 1414 years from today when the interest rate is 8 % per? year?

b. 2828 years from today when the interest rate is 16 % per? year?

c. 77 years from today when the interest rate is 4 % per? year?

Q 7

Your daughter is currently 1212 years old. You anticipate that she will be going to college in 66 years. You would like to have $ 141 comma 000$141,000 in a savings account to fund her education at that time. If the account promises to pay a fixed interest rate of 5 %5% per? year, how much money do you need to put into the account today to ensure that you will have $ 141 comma 000$141,000 in 66 ?years?

Q 8

Suppose you receive $ 160$160 at the end of each year for the next three years.

a. If the interest rate is 6 %6%?, what is the present value of these cash? flows?

b. What is the future value in three years of the present value you computed in ?(a?)?

c. Suppose you deposit the cash flows in a bank account that pays 6 %6% interest per year. What is the balance in the account at the end of each of the next three years? (after your deposit is? made)? How does the final bank balance compare with your answer in ?(b?)?

Q 9

You have just received a windfall from an investment you made in a? friend’s business. He will be paying you $ 49 comma 287$49,287 at the end of this? year, $ 98 comma 574$98,574 at the end of the following? year, and $ 147 comma 861$147,861 at the end of the year after that? (three years from? today). The interest rate is 14.8 .8% per year.

a. What is the present value of your? windfall?

b. What is the future value of your windfall in three years? (on the date of the last? payment)?

Q 10

You have just turned 30 years? old, have just received your? MBA, and have accepted your first job. Now you must decide how much money to put into your retirement plan. The plan works as? follows: Every dollar in the plan earns 9 %9% per year. You cannot make withdrawals until you retire on your 60 th60th birthday. After that? point, you can make withdrawals as you see fit. You decide that you will plan to live to 100 and work until you turn 6060. You estimate that to live comfortably in? retirement, you will need $ 93 comma 000$93,000 per year starting at the end of the first year of retirement and ending on your one hundredth birthday. You will contribute the same amount to the plan at the end of every year that you work. How much do you need to contribute each year to fund your? retirement?