(a) Derek Lee Inc. has $600000 to invest. The company is trying to decide between two alternative
uses of the funds. One alternative provides $80000 at the end of each year for 12 years and the
other is to receive a single lump sum payment of $1900000 at the end of the 12 years. Which alternative
should Lee select? Assume the interest rate is constant over the entire investment.
(b) Derek Lee Inc. has completed the purchase of new Dell computers. The fair market value of the
equipment is $824150. The purchase agreement specifies an immediate down payment of $200000
and semiannual payments of $76952 beginning at the end of 6 months for 5 years. What is the
interest rate to the nearest percent used in discounting this purchase transaction?