Problem 1: Company Inc. is planning on taking advantage of an investment opportunity that has an initial cost of $475K. The annual O & M costs are estimated at $19K over the useful life of 16 years, at which time, the salvage value is $80K. Periodic overhauls will be required every 4 years, which are estimated to cost $12K. In addition to this, the investment will generate revenue of $75K per year for the 16 years in question.
Draw the cash flow diagram. Assume the EOP discrete cash flows.
Problem 2: David decides to invest $370,000 in a stock option. After discussion with his stockbroker, he determines that he will get a periodic rate of 1.5% per month for a year for his investment. Based on the above information,
a) What are the nominal rate per year and the effective annual rate?
b) How much money will David receive at the end of 9 years?