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I Have None

In: Business and Management

Submitted By Infinitechange
Words 585
Pages 3
Exercise 1 (25 points)

a) You need some money today and the only friend you have that has any is your ‘miserly’ friend. He agrees to loan you the money you need, if you make payments of €20 a month for the next six month. In keeping with his reputation, he requires that the first payment be paid today. He also charges you 1.5 percent interest per month. How much money are you borrowing? b) You borrow €149,000 to buy a house. The mortgage rate is 7.5 percent and the loan period is 30 years. Payments are made monthly. If you pay for the house according to the loan agreement, how much total interest will you pay? c) You are considering an annuity which costs €100,000 today. The annuity pays €6,000 a year. The rate of return is 4.5 percent. What is the length of the annuity time period? d) You deposit €3,000 in a retirement account today at 5.5 percent interest. How much more money will you have if you leave the money invested for forty-five years rather than forty years? e) Beatrice invests €1,000 in an account that pays 4 percent simple interest. How much more could she have earned over a five-year period if the interest had compounded annually?

Exercise 2 (25 points)

A project will produce costs (variable plus fixed) of €45,000 a year for four years. During the life of the project, inventory will be lowered by €30,000 and accounts receivable will increase by €15,000. Accounts payable will decrease by €10,000. The project requires the purchase of equipment at an initial cost of €120,000. The equipment will be depreciated straight-line to a zero book value over the life of the project. The equipment will be salvaged at the end of the project creating a €25,000 after-tax cash flow. At the end of the project, net working capital will return to its normal level.
The net present value of this project ( given a...

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