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FIN 4305 (Investments) - Test HW 3 with Answers - June 2022 (100 out of 100 p
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FIN 4305 (Investments) - Test HW 3 withAnswers - June 2022 (100 out of 100 p
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FIN 4305 (Investments) – Test HW3 with Answers – June 2022 (100 out of 100
points) Questions
1. Use the following information to answer the next three questions.
You are evaluating two mutually exclusive projects, A and B. Project A has an initial
outlay of 389,000 and is expected to produce cash flows of 242,000 in year one and
294,000 in year 2. Project B has an initial outflow of 199,000 and is expected to generate
131,500 in year one and 172,500 two years from today. The opportunity cost of capital
for each project is 8%.
Find Project A's internal rate of return.
2. Find the net present value of Project B. Round your final answer to two decimals. Do not
use the dollar sign when entering your answer.
3. Which project(s) should you choose based on NPV?
4. Today, you decide to make a one-time deposit into an account that provides a 5% rate
of return, compounded quarterly. How much must you place in the account today so
that you have $80,000 in 10 years?
5. Use the following information to answer the next two questions.
Your little brother is about to go to college. Your parents estimate that his tuition and
fees will cost $11,000/year for the next five years. They decide to make a one-time
investment today into an account that earns 7% compounded annually to cover these
costs. How much must they invest to fully cover your brother's tuition and fees? Round
your final answer to two decimals. Do not enter the dollar sign when inputting your
answer.
6. Suppose that your parents decide to invest $55,000 today in the account mentioned in the
previous question. How much money would be left in the account after 5 years has
passed and your brother's tuition and fees were fully paid?
7. You just won a $25 million lottery jackpot. You are offered a choice to receive the
$14 million today, or equal installments of $1 million per year for 25 years. Ignoring
taxes, which option would you take if your required rate of return is 10%?
8. You invested $25,000 in an account three years ago. How much is in your account
today if you earned a 5% annual return?
9. You decide to purchase a $500,000 home. You put 10% down and finance the rest at a
4% rate over 30 years. Find the minimum monthly payment on your loan. Round
intermediate steps and your final answer to four decimals. Do not use the dollar sign
when inputting your answer.
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