1. You estimate that a project will cost $58,400 and will provide cash inflows of $18,000, $21,000, and $28,600 for years 1 to 3. Based on the profitability index rule, should the project be accepted if the discount rate is 17 percent? Why or why not?
2. A farmer buys a new tractor for $35,000. He makes a down payment of $10,000 and finances the balance of 8.5% APR over 48 months. Before making the 12th payment, the farmer decides to pay the remaining balance on loan. How much interest will the farmer save (use the actuarial method)?