Question;Problem #1Lugar Industries is considering an investment in a new machine with the following information:Machine cost 225,000Setup cost 25,000Salvage value 50,000Life 5 yearsNet operating expense savings:End of Year 1 $ 50,000End of Year 2 $ 90,000End of Year 3 $110,000End of Year 4 $120,000End of Year 5 $120,000WACC 10%Tax rate 40%Assumed value of the machineat end of 5 years is $50,000If Lugar buys the machine, calculate the following:a. Payback Period. Enter you answer and carry it out two decimal places. (For example a 2 year payback is entered as 2.00)b. Discounted Payback Period. Enter you answer and carry it out two decimal places. (For example a 2 year discounted payback will be entered as 2.00)c. Calculate the NPV. Round you answer to the nearest whole number. Do not use $, commas, or decimal points) (For example, $34,567.50 would be entered as 34568.d. Based on the above information, calculate the IRR. Round you answer to the nearest two decimal places. Do not use %) (For example, 34.4550% would be entered as 34.46.e. Based on your calculations, should Lugar buy the machine?A) YesB) NoProblem #2How much would a person need to invest in a retirement account each year based on the following assumptions to attain their retirement goal:Current Age of Person 55Current Retirement Account Balance $250,000Years to Retirement 10*Retirement Income in Today?s Dollars $60,000Average Inflation Rate 4%Years of Retirement Income Desired 15Pre-Retirement Account Interest Earnings Rate 9%After Retirement Account Interest Earnings Rate 7%(*Assume the first retirement payment is available immediately upon retirement at the end of year 10. Yearly amount of savings. Round you answer to the nearest whole number. Do not use $, commas, or decimal points and enter as a positive number. For example, $34,567.50 would be entered as 34568.)Problem #3For this question only, assume that you are living in the U.S. and the economy has been doing well for the past 4 years. This is not the case right now but hopefully we will experience this in the near future again. Assume the following information regarding the economy:Current Unemployment Rate 5%GDP growth rate for past 4 years 3.2% averageCurrent Fed Funds Rate 4.5%Current 30 Year Mortgage Rate 7%Stock Market Historic HighsInflation rate for the past 4 years 3.5% averagea. If you are invested primarily in stocks as opposed to bonds, why might a recession hurt your investment portfolio? Explain your answer.b. If you do not expect a recession for at least 2 more years but expect an annual 5% inflation rate for each of the next two years, would you rather be invested in the stock market or the bond market? Base your answer only on the impact of interest rate change. Explain.Problem #4The habit of spending a monthly amount of money has both a net present value impact and a future value impact. Assume you have been asked to show a 20 year old who is currently spending $1,800 a year on cigarettes the financial impact of this habit. Do not focus on the health issues or even the potential health costs. Just show the impact of this habit on a NPV basis and a Future Value basis. Use the following assumptions to help in your calculations:Average Inflation rate for the cost of cigarettes 5%Use a 20 year time period and compound yearly.Assume a discount rate of 7% for NPV and 7% for the potential earnings if those dollars are invested instead of used to purchase cigarettes.
Paper#49180 | Written in 18-Jul-2015Price : $39