The text states, "over sufficiently long time periods, net income equals cash inflows minus cash outflows, other than cash flows with owners." demonstrate the accuracy of this statement in the following scenario: two friends contributed $50,000 each to form a new business. the owners used the amounts contributed to purchase a machine for $100,000 cash. they estimated that the useful life of the machine was five years and the salvage value was $20,000. they rented out the machine to a customer for an annual rental of $25,000 a year for five years. annual cash operating costs for insurance, taxes, and other items totaled $6,000 annually. at the end of the fifth year, the owners sold the equipment for $22,000, instead of the $20,000 salvage value initially estimated. (hint: compute the total net income and the total cash flows other than cash flows with owners for the five-year period as a whole.)

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Suppose that jim plans to borrow money for an education at texas a& m university. jim will need to borrow $25,000 at the end of each year for the next five years (total=$125,000). jim wishes his parents could pay for his education but they can’t. at least, he qualifies for government loans with a reduced interest rate while he is in school. he has a special arrangement with aggiebank to lend him the money at a subsidized rate of 1% over five years without having to make a payment until the end of the fifth year. however, at the end of the fifth year, jim agrees to pay off the loan by borrowing from longhorn bank. longhorn bank will lend him the money he needs at an annual interest rate of 6%. jim agrees to pay back the longhorn bank with 20 annual payments and the payments will be uniform (equal annual payments including principal and interest). (i) calculate how much money jim has to borrow at the end of 5 years to pay off the loan with aggiebank. a. $121,336 b. $127,525 c. $125,000 d. $102,020 e. none of the above

The returns on the common stock of maynard cosmetic specialties are quite cyclical. in a boom economy, the stock is expected to return 22 percent in comparison to 9 percent in a normal economy and a negative 14 percent in a recessionary period. the probability of a recession is 35 percent while the probability of a boom is 10 percent. what is the standard deviation of the returns on this stock?