1. An investment of $10,000 can be made in a project that will produce five (5) uniform annual revenues and a market value (salvage) value of $2,000. The company is willing to accept any project that will earn 10% per year or more, on all the invested capital. Compute the annuity that will make this investment worthwhile.
$2,000
$1,600
$2,310
$2,638
2. Which of the following statement is incorrect?
a. When we calculate the present value of a future promised or expected cash payment, we discount it because the same amount of money is worth less if it is to be received later rather than now.
b. With an ordinary annuity, the cash payments occur at the beginning of each time period.
c. An example of a perpetuity is the dividends typically paid on a preferred stock issue.
d. Most of the answers are correct.
e. The entire interest earned on investments is called compound interest which is composed of interest earned on interest and simple interest that is earned on the original principal.