Problem 1) A company has an option to purchase equipment or $24,000 but can lease the identical equipment for $5,000 per month for the next 6 years. Its WACC is 7.656% and the equipment has a salvage value if $1000 an the end of 6 years. Which option should the company take?
- Lease
- Buy
- Indifference
- Not enough information to answer; cash flow from equipment is needed
Problem 2) Dad wants to buy his son a new car on his 18th birthday. His son just turned 13, and Dad estimates the new car will cost $28,000 at the time of purchase. Rates on 5 year certificates of deposit are currently at 5%, with quarterly compounding. How much does Dad need to deposit today to have $28k at maturity?
Problem 3: An investor deposits %18,000 into a fixed, 5-year CD with annual compounding. At the maturity date, the CD is worth $211,000. What average annual rate was earned on this investment?
Problem 4: You deposit $1000 dollars today in a fixed rate, tax deferred annuity, which guarantees an 8% return with quarterly compounding. Commencing with the next year, you subsequently deposit $250 every three months at the end of the period, for the next 9 years. What is the value of the annuity at maturity?