Exam 4: Discounted Cash Flow Valuation

Sara is the recipient of a trust that will pay her $500 on the first day of each month,starting immediately and continuing for 40 years.What is the value of this inheritance today if the applicable discount rate is 7.3 percent,compounded monthly?

Scott has been offered an employment contract for ten years at a starting salary of $65,000 with guaranteed annual raises of 5 percent.What is the current value of this offer at a discount rate of 7 percent?

You borrow $12,600 to buy a car.The terms of the loan call for monthly payments for five years at an interest rate of 4.65 percent,compounded monthly.What is the amount of each payment?

What is the future value of $3,100 a year for six years at interest rate of 8.9 percent?

You have been offered a job that pays an annual salary of $48,000,$51,000,and $55,000 over the next three years,respectively.The offer also includes a starting bonus of $2,500 payable immediately.What is this offer worth to you today at a discount rate of 6.5 percent?

A small craft store located in a kiosk expects to generate annual cash flows of $6,800 for the next three years.At the end of the three years,the business is expected to be sold for $15,000.What is the value of this business at a discount rate of 15 percent?

What is the future value of investing $5,650 for 14 years at a continuously compounded rate of 8.6 percent?

You just won the lottery! As your prize you will receive $1,500 a month for 150 months.If you can earn 7 percent,compounded monthly,on your money,what is this prize worth to you today?

A perpetuity differs from an annuity because:

You want to establish a trust fund that will provide $50,000 a year forever for your heirs.If the fund can earn a guaranteed rate of return of 4.5 percent,how much must you deposit in a solitary lump sum to establish this trust?

What is the effective annual rate of 10.25 percent compounded continuously?

Leo received $7,500 today and will receive another $5,000 two years from today.If he invests these funds immediately at 11.5 percent,what will his investments be worth five years from now?

Which one of these statements is correct concerning the time value of money?

An insurance settlement offer includes annual payments of $36,000,$42,000,and $50,000 over the next three years,respectively,with the first payment being made one year from today.What is the minimum amount you should accept today as a lump sum settlement if your discount rate is 7 percent?

Taylor's Hardware offers credit at an APR of 14.9 percent and compounds interest monthly.What actual rate of interest are they charging?

Assume a cash flow of $82,400 in the first year and $148,600 in the second year.Also assume a present value of $303,764.34 at a discount rate of 12.75 percent.What is the cash flow in the third year if that is the only other cash flow?

The government imposed a fine on a firm that requires a payment of $100,000 today,$150,000 one year from today,and $200,000 two years from today.The government will hold the funds until the final payment is collected and then donate the entire amount to charity.How much will be donated if the government pays 3 percent interest on the held funds?

Anna has $38,654 in a savings account that pays 2.3 percent interest.Assume she withdraws $10,000 today and another $10,000 one year from today.If she waits and withdraws the remaining entire balance four years from today,what will be the amount of that withdrawal?

Martha left an inheritance to her grandson that will pay him $1,500 on the first day of every other year.When computing the PV of this inheritance,the grandson should use:

Lucas invested $4,500 at 6.2 percent,compounded continuously.What will his investment be worth after 15 years?