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