1. Why is it important to know how to calculate a firm's cost of money? Explain.
2. Depreciation is a noncash expense. Despite that fact, explain why it is necessary to consider depreciation when estimating a project’s net cash flows.
3. You have invested in a small pulpwood timber stand. You will harvest and sell the timber every 7 years starting today. Today’s timber sale earns $40,000, and you expect these profits to grow with inflation and continue forever. The annual interest rate is 8.33% and inflation is expected to be 2.52%. What is the value of the timber stand today?