Question

#2) Albert owns a yoga studio that has a cost of capital of 17.85 percent. The yoga studio is expected to produce annual cash flows of 69,035 dollars for 7 years. The first annual cash flow of 69,035 dollars is expected later today. In addition to the annual cash flows of 69,035 dollars, the yoga studio is also expected to produce a special, one-time cash flow of 31,597 dollars in 3 years from today. How much is Albert’s yoga studio worth?

A race track is expected to produce regular annual cash flows of 27,403 dollars with the first regular cash flow expected later today and the last regular cash flow expected in 6 years from today. In addition to the regular cash flows of 27,403 dollars, the race track is also expected to produce an extra cash flow of 88,727 dollars in 6 years from today. The cost of capital for the race track is 11.14 percent. What is the value of the race track?

A yoga studio is expected to produce regular annual cash flows of 16,104 dollars with the first regular cash flow expected later today and the last regular cash flow expected in 4 years from today. In addition to the regular cash flows of 16,104 dollars, the yoga studio is also expected to produce an extra cash flow of 78,318 dollars in 5 years from today. The cost of capital for the yoga studio is 11.15 percent. What is the value of the yoga studio?

Sasha has an investment worth 41,378 dollars. The investment will make a special payment of X to Sasha in 3 years from today. The investment also will make regular, fixed annual payments of 6,800 dollars to Sasha with the first of these payments made to Sasha later today and the last of these annual payments made to Sasha in 7 years from today. The expected return for the investment is 9.76 percent per year. What is X, the amount of the special payment that will be made to Sasha in 3 years?

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Answer 1

Please find answer to the first question below:

a) Total worth of Albert's yoga studio = Present Value of future cash flows ------(1)

Present Value of future cash flows = Present value of periodic future cash-flows + Present value of one time cash payment in 3 years--------(2)

Present value of periodic future cash-flows (beginning of period)=

P = $69,035(Future Annual Cash flow)

r = 17.85%(Cost of Capital)

Number of periods = 7 (beginning of period reference is used since cash flows start at the beginning of the period)

Using the above formula Present Value of periodic future cash-flows = $311,423.47 ---- (3)

One time cash inflow 3 years from today = $31,597

Present value of one time cash inflow 3 years from now = $19,304.43 ---- (4)

(From 1,2,3 and 4)

Total worth of Albert's Yoga Studio as of date= $330,727.90