(a) A capital investment project requires an investment of $145,000 and has an expected life of four years. Annual cash flows at the end of each year are expected to be $35,000 for year 1; $45,000 for year 2; $55,000 for year 3, and $50,000 for year 4. Compute the net present value for the project using an 8% per annum discount rate. You are required to calculate the discount factors to three decimal pointsYou are required to calculate the discount factors to three decimal points.
(b) Assume you have $3,000 in your bank account today and you decide to transfer the money into a special educational deposit, which has been newly introduced by the bank. Your friend tells you that you will require at least $8,000 to register for your professional course. The bank is willing to pay you an 8% per annum compound interest rate on your deposit. How long will it take until you get to your target amount of $8,000?
(c) How will your answer differ if the bank offers to pay 8% per annum simple interest ? Use simple interest to compute the time it will take to reach your target.
(d) Refer to the information provided in part (b). You have $3,000 and you need $8,000 in four years' time. How much interest must the bank pay you compounded once per year so that you have $8,000 in four years?
(e) How will your answer to part (d) change, if the bank pays simple interest? Compute the Simple interest rate required.