1. A tractor and mower costs $28.000. At the present time. You can earn a net return of $6, 700 at the ends of years 1 through 6. The equipment will be worth $4, 000 when you are done using it at the end of year 6. Calculate the net present value of the tractor-mower investment using a discount rate of 8%.
2. A saw mill for cutting wood costs $24, 000 at the present time. You can cam a net return of $6, 800 at the end of year 1, $7, 000 at the end of year 2, $7, 200 at the end of year 3, and $7, 300 at the end of year 4. The equipment will be worth $7, 500 when you are done using it at the end of year 4. Calculate the net present value of the mill using a discount rate of 8%.
3. Based on NPV, which investment looks better? Explain why this comparison is not a good idea.
4. Find the annuity which is equivalent each of the above investment NPV (questions 1 and 2). Based on the annuity equivalent, which investment is better? Why?