Question

Problem 5-50 (similar to) (Present value of an uneven stream of payments) You are given three investment alternatives to analyze. The cash flows from these three investments are shown in the Below table . Assuming a discount rate of 25 percent, find the present value of each investment.

a. What is the present value of investment A at 25 percent annual discount rate?

INVESTMENT | |||

END OF YEAR | A | B | C |

1 | $12,000 | $12,000 | |

2 | 12000 | ||

3 | 12000 | ||

4 | 12000 | ||

5 | 12000 | $12,000 | |

6 | 12000 | 60000 | |

7 | 12000 | ||

8 | 12000 | ||

9 | 12000 | ||

10 | 12000 | 12000 |

Answer #1

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

a.For A:

Present value=12000/1.25+12000/1.25^2+12000/1.25^3+12000/1.25^4+12000/1.25^5

=12000/[1/1.25+1/1.25^2+...........+1/1.25^5]

=$12000*2.68928

=**$32271.36**

**b.B:**

Present value=12000/1.25^5+12000/1.25^6+.......+12000/1.25^10

=12000[1/1.25^5+1/1.25^6+...........+1/1.25^10]

=$12000*1.20890327

which is equal to

=**$14506.84(Approx)**

**c.**

**C:**

**Present
value=**12000/1.25+60,000/1.25^6+12000/1.25^10

which is equal to

=**$26617.13(Approx).**

Present value of an uneven stream of payments ) You are given
three investment alternatives to analyze. The cash flows from these
three investments are as follows: Investment End of Year
End of Year A B C
1 $3,000 $1,000 $5,000
2 4,000 1,000 5,000
3 5,000 1,000 (5,000)
4 -6,000 1,000 (5,000)
5 6,000 5,000 15,000
What is the present value of each of these three investments if
the appropriate discount rate is
14percent?

Present value of annuities and complex cash flows)
You are given three investment alternatives to analyze. The cash
flows from these three investments are as follows:
Assuming an annual discount rate of 20 % find the present value
of each investment.
Investment Alternatives
End of Year
A
B
C
1
$
10,000
$
10,000
2
10,000
3
10,000
4
10,000
5
10,000
$
10,000
6
10,000
50,000
7
10,000
8
10,000
9
10,000
10
10,000
10,000

(Related to Checkpoint 6.6)
(Present value of annuities and complex cash flows )
You are given three investment alternatives to analyze. The cash
flows from these three investments are as follows:
End of Year
A
B
C
1
$16,000
$16,000
2
16000
3
16000
4
16000
5
16000
$16,000
6
16000
80000
7
16000
8
16000
9
16000
10
16000
16000
Assuming an annual discount rate of 15 percent, find the
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a. What is the...

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$
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End of Year A B C
1 $1,000 $1,000 $5,000
2 2,000 1,000 5,000
3 3,000 1,000 (5,000)
4 -4,000 1,000 (5,000)
5 4,000 3,000 15,000
What is the present value of each of these three investments if
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a. What is the present value of investment A at an annual
discount rate of 14percent?

You are given three investment alternatives to analyze. The cash
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End of Year
A
B
C
1
10,000
10,000
2
10,000
3
10,000
4
10,000
5
10,000
10,000
6
10,000
50,000
7
10,000
8
10,000
9
10,000
10
10,000
10,000
Assuming an annual discount rate of 20 percent, find the
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2. You are facing two investment opportunities. The first one
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(2b) If the investment will provide...

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End of Year
A
B
C
1
$3,000
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2
4000
1000
4000
3
5000
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4
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5
6000
4000
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