Question

1.Sasha owns two investments, A and B, that have a combined total value of 52,200 dollars. Investment A is expected to pay 29,700 dollars in 3 year(s) from today and has an expected return of 8.62 percent per year. Investment B is expected to pay X in 6 years from today and has an expected return of 7.58 percent per year. What is X, the cash flow expected from investment B in 6 years from today?

2.Fairfax Paint is planning to sell its McLean, Springfield, and Falls Church stores in T years from today. The firm expects to sell its Springfield store for a cash flow of H dollars, its Falls Church store for a cash flow of H dollars, and its McLean store for a cash flow of M dollars. The cost of capital for the Falls Church store is W percent, the cost of capital for the Springfield store is Q percent, the cost of capital for the McLean store is Q percent, H > M > 0, Q > W > 0; and T > 0. The cash flows from the sales are the only cash flows associated with the various stores. Based on the information in the preceding paragraph, which one of the following assertions is true?

3.Gomi Waste Disposal is planning to sell its Columbus, Memphis, and Detroit facilities. The firm expects to sell each of the three facilities for the same, positive cash flow of W dollars. The firm expects to sell its Columbus facility in Z years, its Memphis facility in Z years, and its Detroit facility in T years. The cost of capital for the Columbus facility is Q percent, the cost of capital for the Detroit facility is Q percent, and the cost of capital for the Memphis facility is P percent. We know that T > Z > 0 and Q > P > 0. The cash flows from the sales are the only cash flows associated with the various facilities. Based on the information in the preceding paragraph, which one of the following assertions is true?  

Two of the three facilities have equal value and those two facilities are more valuable than the third facility or all three facilities have the same value
		The Columbus facility is the most valuable of the 3 facilities
		The Memphis facility is the most valuable of the 3 facilities
		The Detroit facility is the most valuable of the 3 facilities
		None of the other assertions is true

Answer 1

Answer to Question 1:

Investment A:

Future Value = $29,700
Time (n) = 3 years
Rate (r) = 8.62%
Present Value = ??

Future Value = Present Value * (1 + r)^ n
$29,700 = Present Value * (1 + 0.0862)^ 3
$29,700 = Present Value * 1.0862^ 3
$29,700 = Present Value * 1.281532
Present Value = $23,175.39

Investment in A is $23,175.39.

Total Investment = $52,200
Investment in B = $52,200 - $23,175.39
Investment in B = $29,024.61

Investment B:

Present Value = $29,024.61
Future Value = ??
Time (n) = 6 years
Rate (r) = 7.58%

Future Value = Present Value * (1 + r)^ n
Future Value = $29,024.61 * (1 + 0.0758) ^6
Future Value = $29,024.61 * 1.0758 ^6
Future Value = $29,024.61 * 1.550205
Future Value = $44,994.10

Expected Cash Flow from Investment B in 6 years from today is $44,994.10.