1. Study the following cash inflow streams expected from two different potential investments.
Based on visual observation alone, which alternative has the higher present value? Why?
2. To increase productivity, Wald Corporation is considering the purchase of a new machine that costs $50,000. Wald expects using the machine to increase annual net cash inflows by $12,500 for each of the next five years. Wald desires a minimum annual rate of return of 10 percent on the investment. Determine the net present value of the investment opportunity and recommend whether Wald should acquire the machine.
3. EZ Rentals can purchase a van that costs $24,000. The van has an expected useful life of three years and no salvage value. EZ expects rental revenue from the van to be $12,000 per year. Determine the payback period and the unadjusted rate of return.