1. Which of the following statements is true regarding a replacement decision?
The depreciation expenses on the new equipment is treated as an outflow.
Any loss on the sale of the old equipment is multiplied by the tax rate and is treated as an outflow at t = 0 (initial investment outlay).
An increase in the net working capital is treated as an inflow when the project begins (initial investment outlay) and as an outflow when the project ends (terminal cash flow).
The benefits resulting from the new investment is treated as an inflow.
The net cash flow from the sale of an old equipment is treated as an outflow at t = 0 (initial investment outlay).
2. Find the present values of the following continuous annuities on December 31, 2017. Use a 6% force of interest. In each case assume that January 1, 2018 is time 0 and that payments are made for 10 years.
a) The payment rate is P(t)=200+t
b) The payment rate is P(t)=500(0.9)t
c) The payment rate is P (t )= 300e0.03t
d) The payment rate is P (t )= 500 − 25t