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Problem Set 2
1. You have two job offers. Company A will start you at $45,000 for the first year (end of
year salary). You are expecting the growth in salary to be 4% each year. Company B will
start you at $40,000 and the expected growth in salary is 6% each year. You plan on
working the next twenty years and your required rate is 9% (same for both the jobs).
Which one should you choose?
2. Assume that a company is expecting a cash inflow of $3,000 from a new project at the
end of the first year and is expecting the inflow to increase at 6.5% each year. The
company expects the project will last for five years (it expects a better product to come
about in five years making this one obsolete). If the discount rate for the project is 10%,
what is the Present Value of the cash inflows?
3. Assume that you are expecting the contribution in your pension plan at the end of the
first year to be 4,000 and you are expecting the contributions to increase at 3% each year.
If you are expecting a return of 10% from your pension investments and you plan on
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This note was uploaded on 04/05/2011 for the course FIN 320 taught by Professor Yatin during the Winter '07 term at Grand Valley State University.
 Winter '07
 Yatin
 Finance

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