FIN 571 Course Great Wisdom / tutorialrank.com FIN 571 Course Great Wisdom / tutorialrank.com | Page 53

4. A friend gives you a proposition. If you give him 1,500 dollars
today, he will guarantee your receive 12 percent a year for the next 5
years. How much money will you receive from him at the end of 5
years? (5 points)

5. You want to buy a new Computer Aided Design (CAD) system for
your business. The cost of the system is $150,000 and you expect to
save over $40,000 per year in reduced labor costs. Please calculate
the net present value of the CAD if your required return is 10 percent
and the life of the system is expected to be 5 years. (10 points)

6. Your company is considering converting its heating system in the
main office from coal to heating oil. The initial cost of removing the
coal fired furnace and installing an new oil fired unit is $60,000. The
life of the analysis is 7 years. In the past you spent $25,000 per year
on coal. The new company says you will spend no more than $15,000
per year on heating oil. If your required return is 12 percent, should
you make this investment? Please calculate the net present value of
this project. (10 points)

7. You have collected the following information:

a. the yield on your company’s preferred stock

8%

b. the yield on your company’s debt 10%
c. the required return on your company’s common stock and internal
equity 12%
d. debt total $5,000,000
e. preferred stock current market value $10,000,000