Economic Decisions

P1

For the cash flow :

a. How can you tell that this is an investment situation?
b. Using time value of money factors, write the formula for the net present value of this cash flow. Use i as the interest rate, and use as few time value of money factors as possible.
c. If your minimum acceptable rate of return is 20%, is this an acceptable investment? Justify your answer numerically.
d. What is the net annual worth of this investment over the five year period using an interest rate of 0%?

P2a

a. Evaluate the investment described by the cash flow with the present worth method and decide whether to accept or reject it. Write the formula you use to make the evaluation, the value calculated in order to make the decision, and the decision (accept or reject). Use as few time value of money factors in the formula as possible. The MARR is 20%.

P2b

b. Evaluate the investment described by the cash flow with the present worth method and decide whether to accept or reject it. Write the formula you use to make the evaluation, the value calculated in order to make the decision, and the decision (accept or reject). Use as few time value of money factors in the formula as possible. The MARR is 20%.

P2c

c. Evaluate the investment described by the cash flow with the present worth method and decide whether to accept or reject it. Write the formula you use to make the evaluation, the value calculated in order to make the decision, and the decision (accept or reject). Use as few time value of money factors in the formula as possible. The MARR is 20%.

P3

You are a freshman, and your parents have put $20,000 in the bank for your college education. They trust you to use the money wisely. Your room-mate has no money but does have a job. She (or he) offers to pay your part of the rent, $150 per month for the next 12 months, if you will give her (or him) a cash loan. Assume for simplicity that rent is paid at the end of each month.
Your parents expect you to invest your money wisely, so you select a minimum acceptable rate of return of 21% a year, or 1.75% a month. How much should you loan your room-mate in return for her (or him) paying your part of the next year's rent?