1011quiz2_2002

1011quiz2_2002 - 1.011 Project Evaluation March 22, 2002...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
1.011 Project Evaluation March 22, 2002 Quiz #2 1. (20 points) Suppose that you are evaluating various projects, each of which has an expected net cash flow of $100,000 per year for 20 years. Circle the discount rate that you would recommend in each of the following situations and state why that is the best: a. You work for International Paper Company, which owns vast forests in northern New England. The $100,000 will come from sales of paper products from a new mill that you are planning to construct. IP has built several similar mills in throughout the region that have provided returns on investment of 10% to 20%. You are trying to decide whether to build another mill: 5 % 10% 15% 20% 25% b. You are a banker, and a very large, financially stable company is willing to pay $100,000 a year for 20 years toward principal and interest on a loan. The prime rate for corporate customers is currently 7%. What rate do you offer this very attractive customer?: 5.5% 6.5% 7.5% 8.5% c. Your friend has a great scheme for a web site and wants you to cash in your trust fund in order to finance his new business. He promises to pay you $100,000 per year for 20 years. What discount rate do you use in deciding the upper limit of what you might invest? 5% 10% 15%
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 4

1011quiz2_2002 - 1.011 Project Evaluation March 22, 2002...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online