1.) Old Time Savings Bank pays 3% interest on its savings accounts. If you depos

Question

1.) Old Time Savings Bank pays 3% interest on its savings accounts. If you deposit $1,800 in the bank and leave it there, how much interest will you earn in the first year? The second year? The tenth year? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Interest

First Year $

Second Year

Tenth Year

2.) A factory costs $350,000. You forecast that it will produce cash inflows of $75,000 in year 1, $135,000 in year 2, and $210,000 in year 3. The discount rate is 11%.

a) Calculate the Present Value of cash inflows. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

b.) Is the factory a good investment? Yes or No?

Explanation / Answer

Interest:

For 1st year = 1800×(1+3%)-1800 = $54

For 2nd year = 1800×(1+3%)^-1800×(1+3%) = $55.62

For 10th year =1800×(1+3%)^10-1800×(1+3%)^9 = $70.46

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