1. A 55-year-old employee wants to retire in 5 years from now. Then he wants $40,000 per year, for a period of 25 years. He just inherited $1,000,000. The interest rate is 11% per year. He wants to put in the bank just enough to have his pension arranged. He wants to spend the money that is not necessary (if any) on some trips and parties. How much money (if any) can he spend now?
2. A company is using a new machine which generates annual cash flows of $3 million per year (at the end of the year). The machine can be used for another 6 years, then it will be worthless. At the end of the 3rd year replacement of some parts must take place, which will cost $4 million. The interest rate will be 7% during the next 6 years.
a) What is the Present Value of all the cash flows that the machine generates?
b) What is the Future Value?
(USE EXCEL AND PUT THE FORMULAS PLEASE)