Question

What is the present value of the following net cash flows if the discount rate is...

What is the present value of the following net cash flows if the discount rate is 12%:

Year Cash Flow
1-5 $10,000 each year
6-10 $15,000 each year
11-15 $17,000 each year

A. $ 86,462

B. $ 79,252

C. $151,400

D. $144,037

Sarah borrowed $125,000 to buy a house, her your loan cost was 11% and she promised to repay the loan in 15 equal annual payments. What is the principal outstanding after the first loan payment?

A. $121,367

B. $123,088

C. $107,617

D. None of the above

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Homework Answers

Answer #1

Select - Option - A ........ $ 86,462

Year CF DF PV
1 10000 0.892857 8928.571
2 10000 0.797194 7971.939
3 10000 0.71178 7117.802
4 10000 0.635518 6355.181
5 10000 0.567427 5674.269
6 15000 0.506631 7599.467
7 15000 0.452349 6785.238
8 15000 0.403883 6058.248
9 15000 0.36061 5409.15
10 15000 0.321973 4829.599
11 17000 0.287476 4887.094
12 17000 0.256675 4363.477
13 17000 0.229174 3895.961
14 17000 0.20462 3478.537
15 17000 0.182696 3105.836
    Present value 86460.37

Question - 2 ........ Select - A. $121,367

(1) Find the PVIFA = [ 1 - (1+r)-n ] / r = [ 1 - (1.11)-15 ] / 0.11 = 7.1908695759

(2) Find the annual equal installment = Principle / PVIFA = 125,000 / 7.1908695759 = 17383

(3) Principle outstanding after 1st installment = 125000 * (1.11) - 17383 = 121,367

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