1. Carrie owns a garage and is contemplating purchasing a tire retreading machine for $14,280. After estimating costs and revenues, Carrie projects a net cash flow from the retreading machine of $2,900 annually for 8 years (assume that the cash flow is received at the end of each year). Carrie hopes to earn a return of 11% on such investments. What is the present value of the retreading operation? Should Carrie purchase the retreading machine?
2. LakeFront Co. is considering investing in a new dock that will cost $280,000. The company expects to use the dock for 5 years, after which it will be sold for $150,000 at that time. LakeFront anticipates cash flows of $50,000 resulting from the new dock. If the appropriate interest rate is 6%, would it be worth buying the dock?
3. Assume that JJ Inc. has a contractual debt outstanding with two options for settlement: (a) pay $3,500,000 today or (b) make annual payments of $400,000 for 15 years, with each payment due at the end of the year. Assuming an effective rate of 8%, which would you recommend?
4. Smith, a financial analyst, is considering to buy a stock. Based on his forecast, after one year from now, the stock price should be $110. Assume that he requires an annum 10% rate of return, no dividend is paid, and his forecast is reasonable, what is the maximum amount he can pay for the stock today?