Instructions for Homework 1:
• You are allowed to discuss homework problems with members of your project group. However, your problem solutions must be distinctly your own work, and not a copy of any other student's work.
• Use a structured problem solving approach (see class handout).
Problems:
Please read and follow the above instructions before doing the problems.
1. One-period investment:
a) Consider the following investment. A parcel of land is available for sale (today only) at $10,000. You expect (based on expert advice) to sell the land a year from now at $11,000. What is your return on investment (ROI)?
b) You receive notification that you have inherited 10,000 dollars, which is available immediately. Would you invest in the parcel of land or invest the money in a savings account with a 2% annual interest rate? Explain your choice.
c) Suppose the annual interest rate for the savings account is 10%. Would you invest in the parcel of land or in a savings account? Explain your decision.
2. A two period investment with intermediate cash flows.
Be sure to explain your approach before providing the required answer.
a) Consider a two-year land investment. A plot of land costs $10,000 today, and you will be able to lease it (to a farmer) over a two-year period (starting now) for $ 1000 per year payable at the end of each year. The resale value of the land at the end of two years is expected to be $11,000. Assume that the discount factor is 6%.
b) Would you go ahead with this investment if you purchased this land today, leased it for 2 years, and then sold it at the end of 2 years? Explain your decision.
3. Cash Flow Analysis for a robotic vacuum cleaner
a) Describe a step-wise (i.e., Step 1.....; Step 2....; etc.) procedure for performing a cash flow analysis for the development of a product from idea all the way to a marketable product that generates revenue. How would you use the cash flow analysis to decide whether to go ahead with the project or not?
b) Determine the Net Present Value of the cleaning robot from Homework #3 using the expected (estimated) cash flows below. Assume an annual discount factor of 12 %. Should your startup go ahead with the development of the robotic vacuum cleaner? Explain your answer.
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Period
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Y1, Q1
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Y1, Q2
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Y1, Q3
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Y1, Q4
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Y2, Q1
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Y2, Q2
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Y2, Q3
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Y2, Q4
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Development Cost
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100
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100
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100
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100
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Marketing Cost
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100
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100
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100
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100
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100
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100
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Production Cost
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200
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200
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200
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200
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200
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Revenue
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500
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500
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500
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500
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Net Cash Flow
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Present Value
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Net Present Value
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4. Financial Accounting for Apple
Locate Apple's Financial Report for the Year 2015 (filed with the US Securities and Exchange Commission). Study the income statement and balance sheet for the Year 2015, and then answer the following questions:
a) First examine the income statement for 2015. What was Apple's sales revenue during 2015? What was Apple's income (net profit) during 2015? What is the return on sales (%) for 2015?
b) Now examine the balance sheet. What is Apple's cash asset in 2015? What is the total equity for 2015? What is the shareholder's equity for 2015? What is the return on equity (%) for 2015?
5. Go Corporation Case Study
Chapters 7-9 of "Startup". Make a list of at least 12-15 important points (facts) from your reading (at least 3 per chapter). Synthesize these points into 3-5 key lessons that you have learned from your reading. Present your solution in the form of a table.