Question

Please solve the following three problems

1) Sarah was presented with capital expenditure for a new air conditioning unit which costs $12,000 today and would generate the following savings.

Year 1 = 2,000

Year 2 = 3,000

Year 3 = 2,000

Year 4 = 4,000

Year 5 = 5,000

Year 6 = 7,500

Year 7 = 5,000

Year 8 = 2,500

If the appropriate discount rate is 8 percent, what are the NPV and the IRR for this outlay?

2. Julia, a private tutor, is considering buying a new power lawn mower. It would save her 30 minutes of work a week, which she would use to see another client. Her fee is $16 per hour and she works 50 weeks a year. The lawnmower would cost $1,400. What would her IRR be if the mower was expected to last 8 years? Express your figures on an annual basis and assume that her required rate of return is 9 percent.

3. Stan's washing machine broke down. He has a choice of two washing machines of equal performance. The first choice, the GE turbo model, cost $400 and had a PV of $230 in savings over having clothes done through an outside service. The second one, a GE supra, cost $600 and had a PV of $450. Which one should he select?

Answer 1

1)