Assume you have an adjustable rate mortgage with interest rates of 6% for year 1, 7% for year 2, 5% for year 3 and 4% for the remaining years of a 10 year mortgage. What is the rate of return if the original mortgage at time 0 is $700,000 and payments are made annually?

A project has the following cash flows. This project is of average risk and the WACC is 0.1. Find the Net Present Value. Round your answer to two decimal places.

Year 0 Year 1 Year 2 Year 3

Cash Flow -$91 $50 $40 $7

3. Which of the following amounts is closest to the net present value of a project that contributes $5,000 at the end of the first year and $8,000 at the end of the second year? The initial cost is $3,000. The appropriate interest rate is 8% for the first year and 9% for the second year.

A. $8,585

B. $8,426

C. $8,363

Given the following cash flows, what is the project's payback for an initial investment of $100,000?

Year 1 - $25,000

Year 2 - $40,000

Year 3 - $45,000

Year 4 - $50,000

a. 2.8 years

b. 2 years

c. Answer cannot be determined.

d. 4 years

Sadik Industries must install $1 million of new machinery in its Texas plant. It can obtain a bank loan for 100% of the required amount. Alternatively, a Texas investment banking firm that represents a group of investors believes that it can arrange for a lease financing plan. Assume that these facts apply:

The equipment falls in the MACRS 3-year class. Estimated maintenance expenses are $56,000 per year. The firm's tax rate is 37%. If the money is borrowed, the bank loan will be at a rate of 13%, amortized in six equal installments at the end of each year. The tentative lease terms call for payments of $280,000 at the end of each year for 3 years. The lease is a guideline lease. Under the proposed lease terms, the lessee must pay for insurance, property taxes, and maintenance. Sadik must use the equipment if it is to continue in business, so it will almost certainly want to acquire the property at the end of the lease. If it does, then under the lease terms it can purchase the machinery at its fair market value at Year 3. The best estimate of this market value is $220,000, but it could be much higher or lower under certain circumstances. If purchased at Year 3, the used equipment would fall into the MACRS 3-year class. Sadik would actually be able to make the purchase on the last day of the year (i.e., slightly before Year 3), so Sadik would get to take the first depreciation expense at Year 3 (the remaining depreciation expenses would be at Year 4 through Year 6). On the time line, Sadik would show the cost of the used equipment at Year 3 and its depreciation expenses starting at Year 3.

_

Year 3-year MACRS 1 33.33 % 2 44.45 % 3 14.81 % 4 7.41 %

_

To assist management in making the proper lease-versus-buy decision, you are asked to answer the following questions:

What is the net advantage of leasing?

Should Sadik take the lease? Do not round intermediate calculations. Round your answer to the nearest dollar.

Net advantage of leasing:_______

On January 1, year 1, Silver Industries Inc. adopted the dollar-value LIFO method of determining inventory costs for financial and income tax reporting. The following information relates to this change:

Silver has continued to use the FIFO method, which approximates current costs, for internal reporting purposes. Silver's FIFO inventories at December 31, year 1, year 2, and year 3 were $100,000, $137,500, and $195,000, respectively.

The FIFO inventory amounts are converted to dollar-value LIFO amounts using a single inventory pool and cost indices developed using the link-chain method. Silver estimated that the current year cost change indices, which measure year-to-year cost changes, were 1.25 for year 2 and 1.20 for year 3.

Complete the following schedule by double-clicking in the associated shaded cell and entering the appropriate value. Enter all amounts as positive values. Enter index values to two decimal places.

Note: Please enter your responses below. Find a way to make them correspond with the number within the table and separate them with semicolons. Use the following examples for [1____], [2____], and [3____] as a reference for formulating your responses:

Example A: (1)555,000; (2)90,555; (3)1,234;
Example B: 1--555,000; 2--90,555; 3--1,234;
Example C: 1 = 555,000; 2 = 90,555; 3 = 1,234;

Be sure that your answers are clear to your Instructor with whichever method you choose.