Question

Starting one month from now, you need to withdraw
$250 per month from your bank account to help cover the costs of your university education. You will continue the monthly withdrawals for the next four years. If the account pays
0.2% interest per month, how much money must you have in your bank account today to support your future needs?
How much money must you have in your bank account today to support your future needs?

$

(Round to the nearest cent.)

Wally, president of Wally's Burgers, is considering franchising. He has a potential franchise agreement that would allow him to receive
10 end-of-year payments starting one year from now. The first two payments would be $25,000 and $24,000 in one and two years respectively, and then $17,000 per year after that for 8 years. If Wally requires a return of 9.9%,

what is the present value of this stream of cash flows?

$

(Round to the nearest cent.)

In the following case, the mixed end-of-period cash flow stream has an annuity embedded within it. Calculate the present value of the cash flow stream, assuming a 7% discount rate.

Year Cash Flow

1. $7,000

2. $4,000

3. $1,000

4. $1,000

5. $1,000

What is the present value of this stream of cash flows?

$

(Round to the nearest cent.)

Answer 1

1.

t = 4*12 = 48 months

Present value = 250*(P/A,0.2%,48)

= 250 * ((1 + 0.002)^48-1)/(0.002 *(1 + 0.002)^48)

= 250 * ((1.002)^48-1)/(0.002 *(1.002)^48)

= 11431.11 (nearest cent)

2.

Present value= (25000-17000)*(P/F,9.9%,1) + (24000-17000)*(P/F,9.9%,2) + 17000*(P/A,9.9%,10)

= (25000-17000)*((1 + 0.099)^-1) + (24000-17000)*((1 + 0.099)^-2) + 17000*(((1 + 0.099)^10-1)/(0.099 *(1 + 0.099)^10))

= (25000-17000)*((1.099)^-1) + (24000-17000)*((1.099)^-2) + 17000*(((1.099)^10-1)/(0.099 *(1.099)^10))

= 117982.89 (nearest cent)

3.

Present value = 1000*(P/A,7%,5) + 6000*(P/F,7%,1) + 3000*(P/F,7%,2)

= 1000*4.100197 + 6000*0.934579 + 3000*0.873439

= 12327.99 (nearest cent)