(a) Your daughter has expressed a wish to attend university when she finishes school in five...

(a) Your daughter has expressed a wish to attend university when she finishes school in five (5) years. You anticipate the cost will be $60,000 at the time she commences university. If your financial institution is offering you 4% pa (compounded monthly), how much do you need to deposit in your account each month in order to save the required amount before your daughter commences university?

(b) You have been offered the opportunity to purchase a start up company building electric cars for the Australian market called Green Motors P/L. Your initial investment is $22,000,000.
The term of the project is 5 years. The project has an expected rate of return of 10% pa. All expected cash flows for the project are below and you have an expected rate of return of 10%
pa.

pa.
End of year Cash flow ($mil)
1 1.8
2 3.0
3 6.5
4 8.4

5 12.3

(i) Based on your required rate of return would you purchase this investment? Present all calculations to support your answer. (2.5 marks)
(ii) Would you change your opinion from (i) if the expected rate of return rose to 15%? Present all calculations to support your answer. (2.5 marks)

Expert Solution

a) Sol.

b) Sol:

jeff jeffy answered 5 months ago

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