A company has an investment project that will cost 2

Question

Microsoft Word - Problem set

1. Jack's Lock and Key is considering remodeling. It estimates that the remodeling will cost $6,000 and that as a result revenues will rise by $3,000 the first year, $2,500 the second year, $1,500 the third year and have no effect after then. If the interest rate is 5%, should Jack's remodel? Defend your answer by showing your work
2. Write the formula to find the present value of $750 to be paid in 5 years if the interest rate is 3 percent.
3. Write the formula for finding the future value of $1,000 today in 10 years if the interest rate is 4 percent.
4. A company has an investment project that will cost $2 million today and yield a payoff of $3 million in 5 years. If the interest rate is 9%, should the firm undertake the project? Show evidence to support your answer