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1. Why does investment analysis focus on cash flow rather than revenue and expense? 2. Suppose that two projects each cost $10,000. The first project returns $3,000 a year for 7 years. The second project returns $5,000 a year for two years. Which has the better payback period? Is that the better project to invest in? 3. Explain compounding and discounting. 4. How much will $8,000 invested at 3 percent simple interest be worth in three years? What will it be worth if the interest rate is 5 percent? 5. How much will $8,000 invested at 3 percent interest be worth in three years if it is compounded annually? Quarterly? How much if the interest rate is 5 percent? Use Excel to solve. 6. If someone offered to pay you $5,000 a year for five years and you could earn 6 percent interest per year, how much would that be worth today? Use Excel to solve. 7. Suppose that you have $50,000 and need to invest it so that you will have $1,000,000 twenty years from now to repay a debt. What interest rate do you have to earn, assuming monthly compounding? Use Excel and be sure to format the cell where the answer will be shown, so that it provides the solution as a percent, with an appropriate number of decimal places. 8. Suppose that you have $50,000 available today and can invest it at 7% per year. How long will it be before you have accumulated $500,000 in the investment? 9. Coffin Corporation wants to buy a new hearse for $60,000. It will last for five years. They expect to make 100 trips per year. Coffin uses a discount rate of 6 percent. If they charge $150 per trip, will they have a positive net present value for the investment? 10. Assume that the Executive Corporation is considering investing $5,000 today in a new piece of equipment that will provide a service they can charge for. The annual cash profits from the machine will be $600, $700, $800, $900, $1000, $1,100, $1,200 for each of the seven years of its useful life. What is the IRR on the investment

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