Question

(pleqase explain througougly with sentences and correct numbers)(need to walk me step by step how got the answer)

2.You have been asked by your boss to evaluate three mutually exclusive projects. The cash flow estimates and costs of each project are given below:

	T=0	1	2	3	4	5	6	7
Project A	-3790	200	600	300	1000	2800
Project B	-3790	1000	1000	1000	1000	1000
Project C	-3790	0	0	0	0	0	0	5400

            (all numbers are in thousands of dollars)

As precisely as you can, describe how the most preferred project is related to the cost of capital.

5.           (a) What rate, when continuously compounded, will yield a 14% annual rate?

(b) What is the effective annual rate when the 14% rate is continuously compounded?

(c)     Consider a cash flow of $10 every period in perpetuity starting one period from now (period t=0). What would be its price under continuous compounding of a 10% annual rate?

Answer 1