1. Describe the difference between net income, operation cash flow, and free cash flow. Why the free cash flow is the most important indicator of investors.
2. A perpetuity pays $120 per year and interest rates are 9.7 percent. How much would its value change if interest rates decreased to 8.2 percent?
3. The start up costs for a project are $25,000. The cost of capital for the firm is 12%. The sum of the present value of the cash flows for the first three years is $26,420.14.
Compute the net present value for the project.