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Homework 517 no.2 Q1- A bank gives you a $10,000 short-term loan that is to be paid back at the end of one year. if the interest rate on this loan is 8%, compounded daily, how much will your payment be at the end of one year. Use the following data to answer questions 2 and 3. You plan to lease an office building for 10 years. You have a choice of three types of rent payments. 1. A lump sum cash payment of $80,000 2. 10 annual payments of $10,000 each, the first occurring immediately 3. 120 monthly payments of $800 each, the first occurring immediately. (Use a spreadsheet to calculate this part). Q2- Assume an effective annual interest rate of 5%, which option would you choose to minimize your expense? Option 1: Lump sum cash payment Option 2: 10 annual yearly payments Option 3: 120 monthly payments. Q3-Based on the correct answer from question 2 what is the present value of this option? Use the following information to answer questions 4, 5, and 6. A project has cash flows of $15,000, $8,000, and $5,000 at the end of year's 1, 2, and 3 years, respectively. Q4-If the prevailing annual effective interest rate is 9%, would you buy the project if it costs $25,000 at the beginning of year 1? Q5-What is the net present value of this investment? Q6-At what interest rate would you accept this investment? Use the following information to answer questions 7 through 9. The prevailing discount rate is 10% per annum. Firms live for three years. Firm F’s cash flows start with $700 in year 1 and grow at 22% per annum for two years. Firm S’s cash flows also start with $350 in year 1 but shrink at -.05% per annum for two years. What are the prices of these two firms? Which one is the better “buy”? Q7- At what price would you buy Firm F Q8-At what price would you buy Firm S Q9-In a couple of sentences, based on the information that you do have, explain which Firm, if any, is the better buy. Extra : Show your work here for any question you want to