Exam 4: Discounted Cash Flow Valuation

A proposed 3-year project has expected annual cash inflows of $5,600,$7,900,and $11,200,for Years 1 to 3,respectively.What is the net present value of this project at a discount rate of 16 percent if the initial cost is $7,800?

Investment options A and B are equally risky and have identical initial costs.Each investment will produce cash inflows of $20,000.Option A will pay $8,000 the first year followed by four annual payments of $3,000 each.Option B will pay five annual payments,starting in 1 year,of $4,000 each.Which one of the following statements is correct given these two investment options? Assume a positive rate of return.

A 5-year loan in the amount of $48,000 is to be repaid in equal annual payments.What is the remaining principal balance after the third payment if the interest rate is 5 percent,compounded annually?

What is the effective annual rate if a firm charges you 7.75 percent,compounded daily,based on a 360-day year?

What is the effective annual rate if the APR is 6.35 percent,compounded continuously?

Clint just won a prize that will pay him $15,000 a year for 15 years,starting at the end of Year 5.What is the current value of this prize if the discount rate is 7 percent,compounded annually?

The future value of an annuity due is computed as

Which type(s)of loan repays the interest as an annuity and the principal as a lump sum?

You expect to receive $5,400 2 years from now,$6,300 3 years from now,and $10,900 6 years from now.What is the future value of these cash flows 7 years from now if the interest rate is 7.4 percent,compounded annually?

A project is expected to produce cash flows of $12,800,$15,900,and $18,000 over the next 3 years,respectively.After 3 years,the project will be discontinued.What is this project worth today at a discount rate of 12.5 percent?

Today,you are retiring.You have a total of $387,419 in your retirement savings and have the funds invested at a guaranteed 3.68 percent,compounded monthly.You want to withdraw $1,500 at the beginning of every month,starting today.You also want the withdrawals to stop when your account balance declines to $100,000.For how many years can you make withdrawals?

Jensen's Shipping is expected to produce an annual cash flow of $218,900 next year.Thereafter,this cash flow is expected to decrease by 1.6 percent per year indefinitely.What is this firm worth today at a discount rate of 18 percent?

A 10-year,$600 annuity pays its first payment at Date 3.If you compute the present value of this annuity,the computed value will be as of Date

Given a positive rate of return and multiple time periods,compound interest

Your parents have been investing $25 a week for the past 18 years into an account for you.Today,this investment account is worth $60,762.53.Interest is compounded weekly.What is the annual rate of return?

You have just obtained a 5-year pure discount loan in the amount of $75,000 at 6.28 percent interest,compounded monthly.What total amount will you have to repay?

A loan in the amount of $212,000 is to be repaid in equal annual payments over 15 years.The interest rate is 7 percent,compounded annually.What is the amount of interest that is included in the loan payment for Year 3?

Wise University expects to receive $100 next year from a new donor.They also expect this amount to increase by 3 percent annually and to continue forever.Which formula will correctly compute the current value of this donation at a discount rate of 13 percent?

Which one of these is the best indicator that acquiring a firm is a good idea?

The Uptown Development project is expected to provide a cash flow of $18,600 next year with annual increases of 3.5 percent for 15 years.After that,the project will be worthless.What is the present value of this project at a discount rate of 17 percent,compounded annually?