BUSFIN 1030 – Introduction to Finance
Homework Set 2
1.
A company is considering a project that is expected to generate its first cash flow in the amount
of $1 million in 6 years. The cash flows thereafter are expected to grow 15% a year until the last cash
flow in year 24. Appropriate discount rate of the project is 13%.
a.
What is the maximum investment the company should dedicate for this project today?
b.
A reevaluation of the project shows that starting from year 25 the project is going to generate the
same cash flow it is expected to generate in year 24 every year forever. By how much does your
answer to
part a
change?
2.
Today is your 25
th
birthday. Your goal is to retire when you turn 70 years old and have sufficient
monthly income until your expected demise on your 99
th
birthday. In order to realize your goal, you
are planning to make deposits into a targetdate retirement fund that is expected to generate 7.8%
annual return, compounded monthly. You want to be able to make monthly withdrawals from this
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 Fall '08
 ZUTTER
 Remainder, Net Present Value

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