1. Kenny is considering transferring his life insurance policy to an ILIT. Which of the following statements is true?
A) If Kenny included a clause that said, “Kenny can change the beneficiary of the trust at any time to any person other than himself” then the assets would be included in Kenny’s gross estate when he died.
B) If the trust allows the trustee to lend money to the Kenny’s estate at Kenny’s death, then the proceeds of the life insurance policy will be included in Kenny’s gross estate.
C) Transferring the policy to the ILIT will eliminate the chance that the proceeds will be included in Kenny’s gross estate at Kenny’s death
D) If Kenny continues to pay the trustee an amount needed to pay the premiums on the policy, the proceeds will be included in his gross estate when he dies.
2. You are considering an investment that costs $12,000 today and will generate cash flows over the next three years of $3,000, $7,000, and $6,000. Your firm has a required rate of return of 9%.
a. Calculate the NPV. b. Calculate the IRR. c. Calculate the Profitability Index. d. Calculate the Payback Period. e. Would you consider this to be a good investment?