Question

1) A company has two investment possibilities, with the following cash inflows: Investment Year 1 Year 2 Year 3 A $1,400 1,600 1,800 B $1,300 1,300 1,300 If the firm can earn 7 percent in other investments, what is the present value of investments A and B? Use Appendix B and Appendix D to answer the question. Round your answers to the nearest dollar. PV(Investment A): $ PV(Investment B): $ If each investment costs $4,000, is the present value of each investment greater than the cost of the investment? The present value of investment A is the cost. The present value of investment B is the cost.

9)

eBook
Inflation is a general increase in prices and may be measured by the Consumer Price Index (CPI). Use Appendix A to answer the questions. -
In Year 1 the CPI was 100; 30 years later, it was 230. What was the annual rate of inflation? Round your answer to the nearest whole number. % -
Nancy and Pam both currently earn $100,000. If the annual rate of inflation is 4 percent, how much must each earn after eight years to maintain their purchasing power? Round your answer to the nearest dollar. $ -
Your parents bought a home for $50,000 in Year 1 and sold it in Year 31 for $280,000. What was the annual rate of price increase over the 30 years? Round your answer to the nearest whole number.
10) Tuition costs at various colleges vary from $15,000 to $30,000
annually. These tuitions are expected to increase over time. If the
annual rate of increase is 2 percent, what will be the new range in
tuition costs in twelve years? Use Appendix A to answer the
questions. Round your answers to the nearest dollar. If the rate doubles from 2 to 4 percent, what will be the range
in tuition costs after twelve years? Use Appendix A to answer the
questions. Round your answers to the nearest dollar. |

Answer #1

1.

Value of Investment A = 1400/(1.07) + 1600/(1.07)^{2} +
1800/(1.07)^{3}

Value of Investment A = $4,175.25

Value of Investment B = 1300/(1.07) + 1300/(1.07)^{2} +
1300/(1.07)^{3}

Value of Investment B = $3,411.61

If Cost is $4000

Value of Investment A = $175.25

Value of Investment B = -$588.39

9.a.

FV = PV(1+r)^{t}

230 = 100(1+r)^{30}

r = 2.82%

9.b.

Amount to be earned after 8 years at 4% inflation rate,

FV = 100000(1.04)^{8}

Amount to be earned = $136,856.90

9.c.

FV = PV(1+r)^{t}

280000 = 50000(1+r)^{30}

r = 5.91%

10.

Range of tuition fee now = 15,000-30,000

After 12 years at 2% interest rate,

Range 1 = 15000(1.02)^{12}

Range 1 = $19,024

Range 2 = 30000(1.02)^{12}

Range 2 = 38,047

Range is 19024-38047

An investment will generate $8,000 a year for 30 years. If you
can earn 10 percent on your funds and the investment costs $90,000,
calculate the present value of investment. Use Appendix D to answer
the question. Round your answer to the nearest dollar. $ Should you
buy it? -Select- Calculate the present value of investment, if you
could earn only 6 percent. Use Appendix D to answer the question.
Round your answer to the nearest dollar. $ Should you...

eBook
Problem 7-07
An investment will generate $10,000 a year for 20 years. If you
can earn 9 percent on your funds and the investment costs $120,000,
calculate the present value of investment. Use Appendix D to answer
the question. Round your answer to the nearest dollar.
$
Should you buy it?
-Select-Yes or no
Calculate the present value of investment, if you could earn
only 5 percent. Use Appendix D to answer the question. Round your
answer to the...

A firm must choose between two investment alternatives, each
costing $90,000. The first alternative generates $25,000 a year for
five years. The second pays one large lump sum of $142,800 at the
end of the fifth year. If the firm can raise the required funds to
make the investment at an annual cost of 9 percent, what are the
present values of two investment alternatives? Use Appendix B and
Appendix D to answer the question. Round your answers to the...

Davis Chili Company is considering an investment of $37,000,
which produces the following inflows:
Year
Cash Flow
1
$
17,000
2
16,000
3
13,000
Use Appendix B for an approximate answer but calculate your
final answer using the formula and financial calculator
methods.
a.
Determine the net present value of the project based on a zero
percent discount rate.
Net present
value
$
b.
Determine the net present value of the project based on a 10
percent...

Davis Chili Company is
considering an investment of $65,000, which produces the following
inflows:
Year
Cash Flow
1
$
29,000
2
28,000
3
25,000
Use Appendix B for an
approximate answer but calculate your final answer using the
formula and financial calculator methods.
a. Determine the net present value of the project
based on a zero percent discount rate.
b.
Determine the net present value of the project based on a 11
percent discount rate. (Do not round intermediate
calculations...

An investment that costs $32,000 will produce annual cash flows
of $10,680 for a period of 4 years. Given a desired rate of return
of 8%, what will the investment generate? Use Appendix Table 2.
(Do not round your intermediate calculations. Round your
answer to the nearest whole dollar.)
A positive net present value of $35,374.
A positive net present value of $3,374.
A negative net present value of $3,374.
A negative net present value of $35,374.

NPV and IRR: Equal Annual Net Cash Inflows
Winter Fun Company is evaluating a capital expenditure proposal
that requires an initial investment of $68,168, has predicted cash
inflows of $14,000 per year for seven years, and has no salvage
value.
a. Using a discounted rate of 14 percent, determine the net
present value of the investment proposal.
Use a negative sign with your answer, if appropriate.
$Answer
b. Determine the proposal's internal rate of return. (Refer to
Appendix 12B if...

NPV and IRR: Equal Annual Net Cash Inflows
Winter Fun Company is evaluating a capital expenditure proposal
that requires an initial investment of $61,256, has predicted cash
inflows of $13,000 per year for seven years, and has no salvage
value.
a. Using a discounted rate of 14 percent, determine the net
present value of the investment proposal.
Use a negative sign with your answer, if appropriate.
$Answer
b. Determine the proposal's internal rate of return. (Refer to
Appendix 12B if...

You will receive
$9,000 three years from now. The discount rate is 13 percent. Use
Appendix B.
a.
What is the value of your investment two years from now?
(Round your answer to 2 decimal places.)
Value of
investment $
b.
What is the value of your investment one year from now?
(Round your answer to 2 decimal places.)
Value of
investment $
c.
What is the value of your investment today? (Round your
answer to...

1.
An investment that costs $6,900 will produce annual cash flows
of $3,140 for a period of 4 years. Given a desired rate of return
of 8%, the investment will generate a present value index of (Do
not round your PV factors and intermediate calculations):
2.197.
1.507.
1.971.
0.664.
2.
Mountain Brook Company is considering two investment
opportunities whose cash flows are provided below:
Year
Investment
A
Investment
B
0
$
(16,750)
$
(11,100)
1
5,630
5,630...

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