You are considering two projects with the following cash flows:

Project X Project Y

Year 1 $9,000 $7,000

Year 2 8,000 7,500

Year 3 7,500 8,000

Year 4 7,000 9,000

Which of the following statements are true concerning these two projects?

I. Both projects have the same future value at the end of year 4, given a positive rate of return.

II. Both projects have the same future value given a zero rate of return.

III. Project X has a higher present value than Project Y, given a positive discount rate.

IV. Project Y has a higher present value than Project X, given a positive discount rate.

A. II only

B. I and III only

C. II and III only

D. II and IV only

E. I, II, and IV only What is the future value of $15,000 a year for 30 years at 12 percent interest?

A. $2,878,406

B. $3,619,990

C. $3,711,414

D. $3,989,476

E. $4,021,223 Alexa plans on saving $3,000 a year and expects to earn an annual rate of 10.25 percent. How much will she have in her account at the end of 45 years?

A. $1,806,429

B. $1,838,369

C. $2,211,407

D. $2,333,572

E. $2,508,316 Holiday Tours (HT) has an employment contract with its newly hired CEO. The contract requires a lump sum payment of $10.4 million be paid to the CEO upon the successful completion of her first three years of service. HT wants to set aside an equal amount of money at the end of each year to cover this anticipated cash outflow and will earn 5.65 percent on the funds. How much must HT set aside each year for this purpose?

A. $3,184,467

B. $3,277,973

C. $3,006,409

D. $3,318,190

E. $3,466,667 Stephanie is going to contribute $300 on the first of each month, starting today, to her retirement account. Her employer will provide a 50 percent match. In other words, her employer will contribute 50 percent of the amount Stephanie saves. If both Stephanie and her employer continue to do this and she can earn a monthly rate of 0.90 percent, how much will she have in her retirement account 35 years from now?

A. $1,936,264

B. $1,943,286

C. $1,989,312

D. $2,068,418

E. $2,123,007 A wealthy benefactor just donated some money to the local college. This gift was established to provide scholarships for worthy students. The first scholarships will be granted one year from now for a total of $35,000. Annually thereafter, the scholarship amount will be increased by 5.5 percent to help offset the effects of inflation. The scholarship fund will last indefinitely. What is the value of this gift today at a discount rate of 8 percent?

A. $437,500

B. $750,000

C. $1,200,000

D. $1,400,000

E. $1,450,750 Southern Tours is considering acquiring Holiday Vacations. Management believes Holiday Vacations can generate cash flows of $187,000, $220,000, and $245,000 over the next three years, respectively. After that time, they feel the business will be worthless. Southern Tours has determined that a 13.5 percent rate of return is applicable to this potential acquisition. What is Southern Tours willing to pay today to acquire Holiday Vacations?

A. $503,098

B. $538,615

C. $545,920

D. $601,226

E. $638,407 You are considering two savings options. Both options offer a 7.4 percent rate of return. The first option is to save $900, $2,100, and $3,000 at the end of each year for the next three years, respectively. The other option is to save one lump sum amount today. If you want to have the same balance in your savings account at the end of the three years, regardless of the savings method you select, how much do you need to save today if you select the lump sum option?

A. $4,410

B. $4,530

C. $4,600

D. $5,080

E. $5,260 Your parents have made you two offers. The first offer includes annual gifts of $10,000, $11,000, and $12,000 at the end of each of the next three years, respectively. The other offer is the payment of one lump sum amount today. You are trying to decide which offer to accept given the fact that your discount rate is 8 percent. What is the minimum amount that you will accept today if you are to select the lump sum offer?

A. $28,216

B. $29,407

C. $29,367

D. $30,439

E. $30,691 You are considering changing jobs. Your goal is to work for three years and then return to school full-time in pursuit of an advanced degree. A potential employer just offered you an annual salary of $41,000, $44,000, and $46,000 a year for the next three years, respectively. All salary payments are made as lump sum payments at the end of each year. The offer also includes a starting bonus of $2,500 payable immediately. What is this offer worth to you today at a discount rate of 6.75 percent?

A. $112,406

B. $115,545

C. $117,333

D. $121,212

E. $134,697 You are considering a project which will provide annual cash inflows of $4,500, $5,700, and $8,000 at the end of each year for the next three years, respectively. What is the present value of these cash flows, given a 9 percent discount rate?

A. $14,877

B. $15,103

C. $15,429

D. $16,388

E. $16,847 You just signed a consulting contract that will pay you $35,000, $52,000, and $80,000 annually at the end of the next three years, respectively. What is the present value of these cash flows given a 10.5 percent discount rate?

A. $133,554

B. $142,307

C. $148,880

D. $151,131

E. $156,910 Your local travel agent is advertising an upscale winter vacation package for travel three years from now to Antarctica. The package requires that you pay $25,000 today, $30,000 one year from today, and a final payment of $45,000 on the day you depart three years from today. What is the cost of this vacation in today's dollars if the discount rate is 9.75 percent?

A. $86,376

B. $89,695

C. $91,219

D. $91,407

E. $93,478 One year ago, Deltona Motor Parts deposited $16,500 in an investment account for the purpose of buying new equipment three years from today. Today, it is adding another $12,000 to this account. The company plans on making a final deposit of $20,000 to the account one year from today. How much will be available when it is ready to buy the equipment, assuming the account pays 5.5 interest?

A. $53,408

B. $53,919

C. $56,211

D. $56,792

E. $58,021 Lucas will receive $6,800, $8,700, and $12,500 each year starting at the end of year one. What is the future value of these cash flows at the end of year five if the interest rate is 7 percent?

A. $32,418

B. $32,907

C. $33,883

D. $35,411

E. $36,255 Miley expects to receive the following payments: Year 1 = $60,000; Year 2 = $35,000; Year 3 = $12,000. All of this money will be saved for her retirement. If she can earn an average of 10.5 percent on her investments, how much will she have in her account 25 years after making her first deposit?

A. $972,373

B. $989,457

C. $1,006,311

D. $1,147,509

E. $1,231,776 The government has imposed a fine on the Corner Tavern. The fine calls for annual payments of $150,000, $100,000, $75,000, and $50,000, respectively, over the next four years. The first payment is due one year from today. The government plans to invest the funds until the final payment is collected and then donate the entire amount, including the investment earnings, to help the local community shelter. The government will earn 6.25 percent on the funds held. How much will the community shelter receive four years from today?

A. $349,674.06

B. $366,875.00

C. $422,497.56

D. $458,572.71

E. $515,737.67 Wicker Imports established a trust fund that provides $90,000 in scholarships each year for needy students. The trust fund earns a fixed 6 percent rate of return. How much money did the firm contribute to the fund assuming that only the interest income is distributed?

A. $1,150,000

B. $1,200,000

C. $1,333,333

D. $1,500,000

E. $1,600,000 You would like to establish a trust fund that will provide $120,000 a year forever for your heirs. The trust fund is going to be invested very conservatively so the expected rate of return is only 5.75 percent. How much money must you deposit today to fund this gift for your heirs?

A. $2,086,957

B. $2,121,212

C. $2,300,000

D. $2,458,122

E. $2,500,000 You have just won the lottery and will receive $540,000 as your first payment one year from now. You will receive payments for 26 years. The payments will increase in value by 4 percent each year. The appropriate discount rate is 10 percent. What is the present value of your winnings?

A. $6,221,407

B. $6,906,372

C. $7,559,613

D. $7,811,406

E. $8,003.11 You need a 25-year, fixed-rate mortgage to buy a new home for $240,000. Your mortgage bank will lend you the money at a 7.5 percent APR for this 300-month loan, with interest compounded monthly. However, you can only afford monthly payments of $850, so you offer to pay off any remaining loan balance at the end of the loan in the form of a single balloon payment. What will be the amount of the balloon payment if you are to keep your monthly payments at $850?

A. $738,464

B. $745,316

C. $767,480

D. $810,220

E. $847,315 ;