Question #77223

1. A certain plant is being sold and was submitted for bidding. Two bids were submitted by interested buyers. The first bid offered to pay 200000 each year for 5 years, each payment being made at the start of each year. The second bidder offered to pay 120000 the first year, 180000 the second year and 270000 each year for the next 3 years, all payments being made at the start of each year. If interest is 12% per year, which bid should the owner of the plant accept? (Draw the cash flow diagram)
2. A dentist wants to determine how much money she needs to put up in a bank now to have enough cash to pay for her yearly out-of-country trips. For the next year, the price of an airplane ticket is 13500 and is assumed to increase by 18% per year each year. She wants to have four out-of-country trips starting next year. How much money she needs to put in an account now if the bank is charging at a rate 9% compounded semi-annually? (Draw the cash flow diagram)

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