1. Comet Powder Company has purchased a piece of equipment costing $100,000. It is expected to generate a ten-year stream of benefits amounting to $16,273 per year. Determine the rate of return Comet expects to earn from this equipment. a. | 16.3% | b. | 62.7% | c. | 10% | d. | 20% |

ANS: C 2. The earnings of Omega Supply Company have grown from $2.00 per share to $4.00 per share over a nine year time period. Determine the compound annual growth rate. a. | 11.1% | b. | 8% | c. | 22.2% | d. | 100% |

ANS: B 3. Mr. Moore is 35 years old today and is beginning to plan for his retirement. He wants to set aside an equal amount at the end of each of the next 25 years so that he can retire at age 60. He expects to live to the maximum age of 80 and wants to be able to withdraw $25,000 per year from the account on his 61st through 80th birthdays. The account is expected to earn 10 percent per annum for the entire period of time. Determine the size of the annual deposits that must be made by Mr. Moore. a. | $212,850 | b. | $23,449 | c. | $2,164 | d. | $8,514 |

ANS: C
Solution:
PVAN = PMT(PVIFA0.10,20) = $25,000(8.514)
= $212,850 needed on 60th birthday
$212,850 = PMT(FVIFA0.10,25) = PMT(98.347)
PMT = $2,164 4. Determine how much you would be willing to pay for a bond that pays $60 annual interest indefinitely and never matures (i.e. a perpetuity), assuming you require an 8 percent rate of return on this investment. a. | $480 | b. | $743 | c. | $1,000 | d. | $750 |

ANS: D
Solution:
PVPER = PMT/i = $60/.08 = $750 5. Air Atlantic (AA) has been offered a 3-year old jet airliner under a 12-year lease arrangement. The lease requires AA to make annual lease payments of $500,000 at the beginning of each of the next 12 years. Determine the present value of the lease payments if the