Problems

1. From Problem 1 in Chapter 15, determine how many hardcover books must be sold to break even.

2. From the car net present value (NPV) example in Chapter 14, “The Auditing Tool,” by what rate do annual sales need to grow for total NPV to equal $1 million?

3. What value of Year 1 unit cost would increase our NPV in the car example of Chapter 14 to $1 million?

4. In our mortgage example, suppose I need to borrow $200,000 for 15 years. If my maximum payments are limited to $2,000 per month, how high an annual interest rate can I tolerate?

5. How could I use Goal Seek to determine a project’s internal rate of return (IRR)?

6. At the end of each of the next 40 years, I’m going to put $20,000 in my retirement fund. What rate of return on my investments do I need so that I will have $2 million available for retirement when I retire in 40 years?

7. I expect to earn 10 percent per year on my retirement investments. At the end of each of the next 40 years, I want to put the same amount of money in my retirement portfolio. How much money do I need to put in each year if I want to have $2 million in my account when I retire?

8. Consider two projects with the following cash flows:

   Open table as spreadsheet

   	Year 1	Year 2	Year 3	Year 4
   Project 1	–$1,000	$400	$350	$400
   Project 2	–$900	$100	$100	$1,000

   For what rate of interest will project 1 have a larger NPV? (Hint: Find the interest rate that makes both projects have the same NPV.)

9. I am managing a conference at my college. My fixed costs are $15,000. I must pay the 10 speakers $700 each, and the college union $300 per conference participant for food and lodging costs. I am charging each conference participant who is not also a speaker $900, which includes the conference fee and their food and lodging costs. How many paid registrants need to attend for me to break even?

10. I am buying 40 pounds of candy. Some of the candy sells for $10 per pound and some sells for $6 per pound. How much candy in each price should I buy to result in an average cost of $7 per pound?

11. Three electricians are wiring my new home. Electrician 1 by himself will need 11 days to do the job. Electrician 2 by himself will need 5 days to do the job. Electrician 3 by herself will need 9 days to do the job. If all three electricians work on the job, how long will the job take to complete?

12. To celebrate the Lewis and Clark Expedition, I am traveling 40 miles upstream and then 40 miles downstream in a canoe. The speed of the river current is 5 miles per hour. If the trip takes me 5 hours total, how fast do I travel if the the river has no current?