(a) Your daughter has expressed a wish to attend university whenshe finishes school in five (5) years. You anticipate the cost willbe $60,000 at the time she commences university. If your financialinstitution is offering you 4% pa (compounded monthly), how much doyou need to deposit in your account each month in order to save therequired amount before your daughter commences university?
(b) You have been offered the opportunity to purchase a start upcompany building electric cars for the Australian market calledGreen Motors P/L. Your initial investment is $22,000,000.
The term of the project is 5 years. The project has an expectedrate of return of 10% pa. All expected cash flows for the projectare below and you have an expected rate of return of 10%
pa.
pa.
End of year Cash flow ($mil)
1 1.8
2 3.0
3 6.5
4 8.4
5 12.3
(i) Based on your required rate of return would you purchasethis investment? Present all calculations to support your answer.(2.5 marks)
(ii) Would you change your opinion from (i) if the expected rate ofreturn rose to 15%? Present all calculations to support youranswer. (2.5 marks)
