1. You are making a $120,000 investment and feel that a 10 percent rate of return is reasonable given the nature of the risks involved. You feel you will receive $48,000 in the first year, $54,000 in the second year, and $56,000 in the third year. You expect to pay out $12,000 as an additional investment in the fourth year. What is the net present value of this investment given your expectations?
2. The Spoon Restaurant is considering a project with an initial cost of $525,000. The project will not produce any cash flows for the first three years. Starting in year four, the project will produce cash inflows of $721,000 a year for three years. This project is risky, so the firm has assigned it a discount rate of 17 percent. What is the project's net present value?