1. Calculate the net present value of a business deal that costs $2500 today and will return $1500 at the end of this year and $1700 at the end of the following year. Use an interest rate of 13%.
2. Find the net present value of a project that has cash flows of - $ 12,000 in Year 1, +$5000 in Years 2 and 3, -$2000 in Year 4, and +$6000 in Years 5 and 6. Use an inter est rate of 12%. Find the interest rate that gives a net present value of zero.
3. A friend asks you for a loan of $1000 and offers to pay you back at the rate of $90 per month for 12 months.
a. Using an annual interest rate of 10%, find the net present value (to you) of loaning your friend the money. Repeat, using an interest rate of 20%.
b. Find an interest rate that gives a net present value of 0. The interest rate for which NPV = 0 is often called the internal rate of return.