__Questions for Case Study Four__

**Answer each question in brief detail. Show all calculations. Upload them using a file name â€œCase Study Four_Your Nameâ€**

1) You start working at age 20 and you plan to deposit $5,000 in a savings account every year for the next 45 years.

- At the end of this time, how much money will you have if the interest rate is 5%?
- You decide that’s not enough money. How much will you have to save every year if you wish to have $1,000,000 when you retire?

2) A firm must spend $10 million today on a project that is expected to bring in annual revenues of $1.5 million for the next 10 years (beginning at the end of year 1).

- If the firm’s cost of capital is 5%, what is the NPV of this project?
- If the firm’s cost of capital is 10%, what is the NPV of this project?
- What is the internal rate of return?

3) Project C has an expected value of $500 and a standard deviation of 50. Project D has an expected value of $300 and a standard deviation of 10. Comment on the desirability of these projects.

4) The Widget Company has estimated the following revenue possibilities for the year:

__Sales Probability__

100 0.15

150 0.20

220 0.30

290 0.20

310 0.15

- Find expected revenue.
- Find the standard deviation.
- Find the coefficient of variation.

5) The XYZ Company has estimated expected cash flows for 1996 to be as follows:

Probability | Cash flow |

.10 | $120,000 |

.15 | 140,000 |

.50 | 150,000 |

.15 | 180,000 |

.10 | 210,000 |

Calculate:

- expected value
- standard deviation
- coefficient of variation
- the probability that the cash flow will be less than $100,000