Question

Valuation of assets Using the information provided in the following table, find the value of each asset today. P6-13 Cash flow Year Amount $ 3,000 3,000 3,000 $ 500 Asset Appropriate required return 8% 1 through oo 5% 6% 4 45,000 $ 1,500 8,500 $ 2,000 3,000 5,000 7,000 4,000 1,000 1 through5 4% 790 4

Answer 1

Please find below solution ... please provide rating..

To compute value of each asset we have to compute the present value of future cash flow using required rate
Asset A
	i	ii	iii	iv=ii*iii
	Year	Cash flow	PVIF @ 8%	present value
	1	3000	0.9259	2,777.78
	2	3000	0.8573	2,572.02
	3	3000	0.7938	2,381.50
				7,731.29
	Value of asset today =			7,731.29
Asset B	Present value of perpetuity = Annual cash flow/required rate
	Value of asset		=500/5%
	Value of asset		10,000.0
Asset C
	Year	Cash flow	PVIF @ 6%	present value
	1	0	0.9434	-
	2	0	0.8900	-
	3	0	0.8396	-
	4	0	0.7921	-
	5	45000	0.7473	33,626.62
	Total			33,626.62
	Value of asset =			33,626.62
Asset D
	Year	Cash flow	PVIF @ 4%	present value
	1	1500	0.9615	1,442.31
	2	1500	0.9246	1,386.83
	3	1500	0.8890	1,333.49
	4	1500	0.8548	1,282.21
	5	1500	0.8219	1,232.89
	6	8500	0.7903	6,717.67
	Total			13,395.41
	Value of asset =			13,395.41
Asset E
	Year	Cash flow	PVIF @ 7%	present value
	1	2000	0.9346	1,869.16
	2	3000	0.8734	2,620.32
	3	5000	0.8163	4,081.49
	4	7000	0.7629	5,340.27
	5	4000	0.7130	2,851.94
	6	1000	0.6663	666.34
	Total			17,429.52
	Value of asset =			17,429.52