1. Assume a 10% discount rate (assume you can invest and borrow at 10%). Compute (with Excel):
(a) $10,000 in cash or $1,000 per year for perpetuity (first payment at the end of the first period).
(b) $10,000 in cash or $1,100 per year for perpetuity (first payment at the end of the first period).
(c) $10,000 in cash or $900 per year for perpetuity (first payment at the beginning of the first period).
2. Why do firms have trouble managing their cash flow? What events cause a cash flow crisis?
3. Convert 6% APR to the corresponding EAR, assuming a) Annual compounding, b) quarterly compounding, c) monthly compounding, d) daily compounding, and e) continuous compounding: Using Excel.