1. Determine which of two investment projects a manager should choose if the discount rate of the firm is 10 percent. The first project promises a profit of $100,000 in each of the next four years, while the second project promises a profit of $75,000 in each of the next six years.
2. Determine which of the two investment projects of Problem 1 the manager should choose if the discount rate of the firm is 20 percent.
3. A woman managing a photocopying establishment for $25,000 per year decides to open her own duplicating place. Her revenue during the first year of operation is $120,000, and her expenses are as follows:
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Salaries to hired help
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$45,000
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Supplies
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$15,000
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Rent
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$10,000
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Utilities
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$1,000
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Interest on bank loan
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$10,000
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Calculate (a) the explicit costs, (b) the implicit costs, (c) the business profit, (d) the economic profit, and (e) the normal return on investment in this business.