Answer for Hw1

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Chapter 4
Q1: Simple Interest versus compound Interest First City Bank pays 9 percent simple interest on its savings account balances, whereas Second City Bank pays 9 percent interest compounded annually. If you made a $5,000 deposit in each bank, how much more money would you earn from your Second City Bank account at the end of 10 years?
A: First City Bank: 5000*(1+10*0.09)=9500 Second City Bank: 5000*(1+0.09)10=11837
11837-9500=2337
So we will earn more $2,337 from Second City Bank account at the end of 10 years.

Q17: Calculating EAR First National Bank charges 10.1 percent compounded monthly on its business loans. First United Bank charges 10.4 percent compounded semiannually. As a potential borrower, to
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Due to technological improvements, beyond that time they will be outdated and no sales will be possible. The equipment necessary for the production will cost $3.2 million and will be depreciated on a straight-line basis to a zero salvage value. Production will require an investment in net working capital of $75,000 to be returned at the end of the project, and the equipment can be sold for $200,000 at the end of production. Fixed costs are $600,000 per year, and variable costs are $165 per unit. In addition to the contract, you feel your company can sell 4,000, 12,000, 14,000, and 7,000 additional units to companies in other countries over the next four years, respectively, at a price of $275. This price is fixed. The tax rate is 40 percent, and the required return is 13 percent. Additionally, the president of the company will undertake the project only if it has an NPV of $100,000. What bid price should you set for the contract?
A: Let the X to stand for the bid price
The total investment is showed in below table | Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | Equipment | ($3,200,000) | |

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